Defeat of jobs bill in Senate costly to California

By Mike Zapler

mzapler@mercurynews.com

Posted: 06/25/2010 04:06:29 PM PDT

Updated: 06/25/2010 10:18:44 PM PDT

WASHINGTON — The demise of a sweeping jobs and tax bill in the U.S. Senate this week dealt a stiff blow to California as it struggles to recover from the recession.

Hundreds of thousands of jobless residents will see their unemployment checks cut off. The deficit-plagued state budget stands to lose billions of desperately needed dollars. And a tax credit for research and development, long prized by the tech industry, appears to be on life support.
The $110 billion catchall measure stalled in the Senate on Thursday night in the face of Republican resistance to another round of deficit spending amid a ballooning national debt. Democrats sought to allay those concerns by slicing the size of the package nearly in half — an earlier version sought by President Barack Obama called for $200 billion in additional spending to prime the economy. The reworked version also offset all but $35 billion of the total cost in order to extend emergency unemployment benefits.
But Republicans argued that the bill should be paid for in full. The measure fell three votes shy of the 60 needed to stop a threatened filibuster, leaving California and other states in limbo as Congress members departed for a weeklong break.
Among the most immediate effects of the bill's defeat is the extra pressure it puts on the state's already dire finances.
The bill would have provided about $1.8 billion in additional Medicaid payments to California,
money that Gov. Arnold Schwarzenegger and Democratic legislators have already factored into their budget proposals. The loss of that aid will force lawmakers to find other cuts or revenue to help plug the $19.1 billion deficit.H.D. Palmer, a spokesman for Schwarzenegger, said the governor hasn't even begun to grapple with how to deal with the loss of that money. But with Republicans taking tax hikes off the table, it's a sure bet that even deeper spending cuts would be in store unless Congress agrees to pass the bill.
"It's honestly hard to see where you go to get $2 billion more to balance a budget that's in as dire straits as California's is," said Jean Ross, executive director of the California Budget Project, which advocates for low- and middle-income residents.
California's unemployed will also feel the pinch. Cheryl Hunt, a tech support worker from Berkeley who lost her job last year, said she recently received a letter from the state unemployment office that her benefits are about to expire.
"I'm totally dependent on this extension," said Hunt, who is trying to refinance her mortgage. "I've exhausted my savings."
Some 200,000 jobless Californians have already lost their unemployment benefits, and that figure is expected to rise to 1.5 million by the end of the year without an extension from Congress. California's unemployment rate stands at 12.4 percent, among the highest in the nation.
The bill also included provisions that directly affect Silicon Valley. A research and development tax credit long employed by high-tech firms expired Dec. 31 but would have been extended an additional year. It now could be lost for good, said Ralph Hellmann, a senior vice president at the Washington, D.C.-based Industry Technology Industry Council.
Tech firms "rely on these incentives to keep and expand research and development here in the U.S.," Hellmann said.
On the other side of the ledger, the measure's defeat gave the venture capital industry a reprieve from a proposed tax increase on so-called "carried interest."
Both of California's senators, Democrats Dianne Feinstein and Barbara Boxer, voted in favor of the jobs and tax bill.
Republican Senate candidate Carly Fiorina, who is running to unseat Boxer in November, said through a spokeswoman that she would have sided with Republicans in blocking the measure.
"While there are some worthwhile programs that are funded under this legislation," the spokeswoman, Julie Soderlund, said in a statement, "it needs much more work to ensure that it does not further hinder job creation."
Soderlund said Fiorina favors extending unemployment benefits and making permanent the research and development credit, but she believes both items should be offset with spending cuts.

Contact Mike Zapler at 202-662-8921.