SACRAMENTO -- An unexpected $6.6 billion in new revenues has lightened the load for Gov. Jerry Brown and the Legislature, but the governor insisted Monday that major compromises must happen to close a still-yawning deficit.
While the additional money boosted spirits across the Capitol and at beleaguered schools around the state, the most significant obstacle in Brown's plan to fix what he called California's "wall of debt'' remained: Republicans are still resisting his call to renew a series of soon-to-expire tax hikes.
"This is not the time to delay or evade,'' Brown said in unveiling his revised budget, "this is the time to put our finances in order.''
Brown acknowledged that the economy has begun to recover, so his proposal included $3 billion more for schools than his January budget. Suggesting his willingness to compromise, he delayed for a year a plan to increase income taxes. But the Democratic governor insisted that extensions on sales tax and vehicle license fees are still needed to close the spending gap and reduce the state's structural debt.
While Brown started the year with a $26.6 projected deficit, cuts and funding shifts and the influx of cash -- mainly from corporations and the wealthy -- have narrowed the gap to $9.6 billion.
"California's economy is growing, but we still face a $10 billion structural deficit and a wall of debt for years to come," Brown said at a news conference.
Still needs GOP
Brown is now asking for a five-year extension on the current sales tax and vehicle license fee rates, and, beginning in 2012, a four-year extension on personal income taxes. But he may now be forced to deal with an emboldened Republican caucus, which could dig in its heels against taxes even deeper than before now that cash is beginning to fill the state's tiller.
"It all depends on how the surge of funds affects the psyche of Republicans," said Larry Gerston, political science professor at San Jose State University. "If they believe they can fight (taxes) off more than ever because of the surge, Brown will not get his taxes. But if they believe there are enough people in their districts who are raising a ruckus because of all the cuts, they may feel compelled to cut some kind of deal."
Brown said he remains firm in his determination to hold a vote on taxes, but conceded he would have to win passage of taxes first in the Legislature before getting approval from the voters. It's a necessary step, he said, to ensure that schools can put their own budgets together for the next school year.
But, he will have to win support from four Republicans -- two in the Senate and two in the Assembly -- for a two-thirds vote required for taxes, a tall order given that Brown could not even get their support to place the issue of taxes on the ballot.
Senate GOP leader Bob Dutton, R-Rancho Cucamonga, and budget vice chairman Bob Huff, R-Diamond Bar, said that with $6.6 billion in new revenues, Republicans are right.
"We don't need, and it's ridiculous to ask voters for, five years of new taxes," they said in a joint statement.
During a morning news conference, Brown deflected questions about what he would do if he can't get the tax extensions passed. But Monday's revised budget warned of brutal cuts if the taxes are not approved and an "all cuts" budget is needed.
Among those: Cutting four weeks from the school year to save $5 billion, since education makes up 40 percent of the state general fund; cutting $500 million each from the UC and CSU systems, which already have been cut by $500 million each this year; closing more than the 70 state parks already marked for closure; dropping state supervision of non-violent parolees; deeper cuts in health services, like prescription drug programs for low-income residents.
Brown wants an election on taxes as soon as possible, but did not specify when it should be.
Senate Leader Darrell Steinberg, D-Sacramento, said an election should not be held until next year -- if at all -- either in the summer or fall, which would give schools and other public agencies at least a year of funding stability.
Bad or worse for schools
The unexpected boost in proposed K-12 education spending surprised many school officials, who have been sketching out a "bad" and "worse" budget for 2011-12.
Despite the governor showcasing $3 billion in additional funds for K-12 education, schools are unlikely to see most of that money. Of the extra sum, $2.5 billion simply undoes one of the tricks used to balance state budgets -- deferrals of payments to schools.
And the lingering political uncertainty about taxes means that schools are not rushing to restore any programs that they've blue-penciled for next year. The Cupertino Union School District, for example, still plans to cut from $350 to $600 per student, Superintendent Phil Quon said. While he welcomed the governor's new budget, he worries about the fate of the tax extensions.
"When that is known, then we'll know where we stand," Quon said.
"It sound like, 'Hey this is great, education is fine,''' said Charles Weis Santa Clara County superintendent of schools. "But there's just as much uncertainty today as there was on Friday... And if you don't have a balanced budget, the education could be cut again."
Signs of compromise
Brown said talks with a number of Republicans -- "more than four and less than 10" -- give him hope that a deal is within reach. He said he hoped he set a positive tone by eliminating one year of income tax surcharges and offering tax incentives for businesses, including enterprise zone tax cuts for businesses that create jobs in the coming year.
Brown has backed off his plan to eliminate enterprise zones because, he said, "the votes aren't there." His new proposal offers tax incentives to businesses in low employment areas who create new jobs going forward.
Brown's proposal to eliminate redevelopment zones remained intact, though a pair of bills are moving through the Legislature to modify redevelopment laws.
Kirk Everett, vice president of tax policy for the Silicon Valley Manufacturing Group, praised the governor for including a sales tax exclusion for business equipment purchases in his revised budget -- something that didn't appear in his January proposal. But he described the current proposal as "baby steps" that do not go far enough.
Everett said 47 other states exempt businesses who purchase manufacturing equipment from having to pay sales tax, and Silicon Valley legislators have long fought to get California to follow suit.
Brown also said he supports placing a spending cap on the ballot, one of the Republicans' most important demands.
"It would give voters real assurance that to the extent there's more money, we will pay down the debt," he said.
Assembly Republicans released their own proposal last week that they said would protect funding for schools and law enforcement, though Brown derided it as more one-time gimmicks that would explode the budget by another $20 billion next year.
But Brown refused to spell out what he would do if Republicans reject his budget.
"I'm proposing what should happen," he said. "I'm not going to give Republicans a road map to ruin.
"If this falls apart, then there will be all manner of untoward outcomes and animosities and division. It would be very divisive for California."
Mercury News Staff Writers Sharon Noguchi, Paul Rogers and Karen de Sa' contributed. Contact Steven Harmon at 916-441-2101.