NOW THAT LEGISLATIVE leaders have come to the realization that both significant tax increases and spending cuts are necessary to balance California's budget, a tentative deal has been made to close a $42 billion gap over the next 18 months.

Unfortunately, most of the negotiations have involved only five people, the Democratic and Republican leaders of both houses of the Legislature and Gov. Arnold Schwarzenegger. And they were done in secret. Perhaps the state would not be in such a fiscal bind if all 120 legislators and the public had been part of the budget process from the start.

At one time, the so-called Big 5 met only to iron out a few minor disagreements on the budget. Over the years, however, almost the entire task of piecing together a budget has been handled by the four legislative leaders and the governor.

On the positive side, there finally does appear to be the makings of a workable budget agreement. It isn't pretty, but no one expected it to be with such a huge shortfall in the middle of a severe recession.

Despite most of the negotiations having been held in secret, at least the outlines of the budget deal have become public.

There will be about $16 billion in budget reductions over the next 18 months, $14 billion in tax increases and nearly $11 billion in borrowing.


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The spending reductions certainly will be painful. The deal allots $5 billion less than K-12 schools were otherwise entitled. California State University and the University of California would see a 10 percent cut in their budgets. State workers would lose two paid holidays, down from 13 to 11, and furloughs would continue through June 2010.

There would be no cost-of-living increases for recipients of welfare programs. The state's huge corrections department's medical budget would be cut by 10 percent.

On the revenue-raising side, the budget deal includes several tax increases. Sales taxes would rise by one cent, the car tax would rise from 0.65 percent of a vehicle's value to 1.15 percent. Gasoline taxes would rise by 12 cents a gallon.

There also would be a 2.5 percent surcharge on income taxes, which could rise to 5 percent if federal stimulus aid for California comes in under $10 billion.

The sales and income tax increases are slated for at least two years and up to five years if voters approve a spending cap measure the Legislature will place on the ballot.

Once again, the state plans to take money from voter-approved taxes, this time for mental health and early childhood programs.

This budget compromise is somewhat similar to what MediaNews proposed in our Page 1 editorial on Feb. 1. It includes a mix of tax increases and spending reductions.

However, the deal is more complex. It has four tax increases (income, motor vehicle, sales and gasoline) instead of the two we suggested (income and motor vehicle). It also transfers voter-approved funds and borrows from the lottery.

Most problematic is that the budget deal requires voters to pass five ballot measures: a spending cap, a change to Proposition 98 school funding, borrowing from the lottery, taking money from Prop. 10 (tobacco tax for children's programs) and taking funds from Prop. 63, the tax on the wealthy for mental-health programs.

Despite its complexity and risk at the polls, a budget compromise is far better than an endless impasse. It allows the state to pay its bills, improve its low credit rating and hope for economic recovery.