, July 19 (Reuters) – With public pension politics heating up, a senior official at the biggest U.S. public pension fund said on Monday he expects major changes this year in how public retirement plans in the most populous U.S. state are funded.

Stephen Kessler of the California Public Employees’ Retirement System, best known as Calpers, said at a retreat for the fund’s top officials that changes could be approved as part of a state budget agreement between Republican Governor Arnold Schwarzenegger and California’s Democrat-led legislature.

Schwarzenegger has said he will not sign a budget for the fiscal year that began this month unless it includes provisions for overhauling the state’s public pensions and for reducing its costs to the state government. He has described pension financing as one of the state government’s greatest financial challenges going forward.

“This is going to be the year of pension reform,” Kessler, Calpers’ benefits expert, said during a presentation at the retreat in San Rafael, California.

Speaking to Reuters at the gathering, Kessler said he believes Schwarzenegger is deadly serious about holding firm to his demand because cutting the cost of pensions for the state government would bolster his legacy as his second term draws to close. He cannot run for reelection because of term limits.

IN NEED OF VICTORY

Schwarzenegger entered office promising to bring order to California’s fiscal woes only to find that easier said than done. Lawmakers have thrown up roadblocks to his efforts, contributing to lengthy and bitter budget battles, and California’s credit rating now hovers a few notches above “junk” status.

SAN FRANCISCO (Reuters) – California’s tortuous budgetary politics may mark a new low this year when the pay of some 200,000 state workers is cut to minimum wage, underscoring the difficulty of balancing the so-called Golden State’s books.

Republican Governor Arnold Schwarzenegger has ordered pay for state employees cut to $7.25 an hour, in many cases as of August 1, to force Democratic lawmakers to negotiate harder on a state budget and tackle a $19 billion shortfall.

“This is a case study in dysfunction. The whole reason this has arisen is because of the failure of the governor and legislature to agree to a budget,” said Jack Pitney, professor of government at Claremont McKenna College.

“If you want to make the case that California is broken, this is Exhibit A,” Pitney added.

California missed a July 1 deadline for a new budget and analysts expect several weeks will pass before there is a deal on a spending plan.

The California legislature is notorious for its partisan divisions, and any budget must be approved by two-thirds of lawmakers, whereas a simple majority can pass budgets in nearly all other states.

Members of powerful public unions employees are scared of lower wages.

SAN FRANCISCO (Reuters) – California’s next governor — whether it be Democrat Jerry Brown or Republican Meg Whitman — will almost certainly inherit a budget mess this November, given the ominous beginning to the fiscal year on Thursday with no spending plan or hope of one soon.

The capital of Sacramento greeted the absence of a spending plan with yawns since state leaders have failed to approve one in time for the new fiscal year in 19 of the past 25 years.

Republican Governor Arnold Schwarzenegger and leaders of the Democrat-led legislature are wildly far apart on how to close a gaping shortfall estimated at more than $19 billion.

There is no immediate effect from the lack of a budget as the fiscal year begins, but State Treasurer Bill Lockyer this week raised the specter of California being forced again to issue IOUs if it runs out of cash.

“It’s absolutely critical that the governor and legislature quickly adopt a budget that’s free of hope-and-a-prayer math and legal clouds. Every day without a credible plan brings us closer to deterioration of the State’s credit rating and the humiliation of IOUs,” Lockyer said in a statement.

BUDGET TRICKS

Recession, the housing slump, battered financial markets and a state jobless rate topping 12 percent have cut hard into state revenue, and few see a credible budget in the works.

SAN FRANCISCO (Reuters) – Even as police in Oakland, California, brace for potential unrest if a jury does not convict a police officer in a murder trial, city officials are scrambling to cut costs and may do so by sacking about 10 percent of the city’s police force.

Across San Francisco Bay in the small city of San Carlos, city officials are going an extra step to balance their budget — considering a plan to shut down the city’s police force and contract with their county sheriff for law enforcement duties.

Oakland and San Carlos are not alone in California in suffering financial strain, and many more local governments in the state will over the near term consider scaling back police departments to help bring budgets into balance, according to analysts.

Other U.S. cities such as New York have also considered police layoffs to fend off cash crunches following the 2008-2009 recession.

“There is only so much efficiency you can squeeze out of a reorg,” said Marianne O’Malley of the California Legislative Analyst’s Office, a watchdog agency that tracks the fiscal condition of the state government and local governments.

TALE OF TWO CITIES

Local government coffers in the most populous U.S. state are bare after a two-year slide in property tax revenue and weak retail sales tax collections. The fall in income reflects consumer anxiety given California’s troubling unemployment rate that is currently over 12 percent.

SAN FRANCISCO, June 15 (Reuters) – California lawmakers will not meet their deadline on Tuesday for approving a state budget, which requires closing a shortfall of more than $19 billion, a spokeswoman for the state Senate’s top officer said.

They will instead work toward having a spending plan together for the state’s next fiscal year by the time it begins on July 1, said Alicia Trost, spokeswoman for Senate President pro Tem Darrell Steinberg, a Democrat.

“The conversations continue. Obviously, we’re very aware today is a deadline and we take that very seriously, but the most important thing is to get a budget right,” Trost said.

Analysts have learned to expect California lawmakers to ignore their June 15 deadline for approving budgets. Lawmakers have also routinely engaged in often lengthy battles over spending plans that stretch out over summer.

This year will be no different, analysts say, noting the stark differences between how Republican Governor Arnold Schwarzenegger and Democrats who control both chambers of the Legislature would balance the state’s budget.

Schwarzenegger has called for massive spending cuts. He opposes tax increases, which Republican lawmakers also rule out.

Democrats have urged selective tax increases, scrapping corporate tax breaks and shifting money between state funds to soften the blow of spending cuts.

SAN FRANCISCO, June 8 (Reuters) – Two powerful Silicon Valley businesswomen won Republican nominations for California governor and the U.S. Senate on Tuesday after capitalizing on their business acumen — and their personal fortunes.

California Republicans, who see a grim future for their economically battered state, chose former eBay Inc (EBAY.O: Quote, Profile, Research) chief Meg Whitman to face former Democratic governor Jerry Brown in the race to succeed Arnold Schwarzenegger.

Confidence in government is scraping bottom in the most populous U.S. state, which is facing record 12.6 percent unemployment and a $20 billion government budget gap.

Carly Fiorina, another wealthy political novice and former chief executive of computer maker Hewlett-Packard Co (HPQ.N: Quote, Profile, Research), trounced her opponents to win the Republican nomination for U.S. Senate in California.

Both women led their closest opponents by more than two-to-one in early returns, and local media projected they would win.

Fiorina will face Senator Barbara Boxer, a powerful liberal Democrat and ally of President Barack Obama on climate change, which may be a major issue in the November races.

“Career politicians in Sacramento and Washington be warned – you now face your worst nightmare: two businesswomen from the real world who know how to create jobs, balance budgets and get things done!” Whitman said in a victory speech.

SAN FRANCISCO, June 7 (Reuters) – Smaller paychecks beat reams of pink slips, California public employee unions are concluding in contract talks with local governments facing budget gaps requiring deep spending cuts.

Even in liberal San Francisco, labor’s public-sector wing has been thrown on the defensive in contract negotiations amid weak revenue collected by the city as California’s economy struggles to recover from its deep slump.

Last week, San Francisco Mayor Gavin Newsom unveiled a $6.48 billion budget plan for the city’s next fiscal year that closed a shortfall of $482.7 million — a feat he said was made possible in no small part by major financial concessions by city workers.

“It may be counterintuitive with some people’s perceptions of labor in San Francisco,” Newsom told Reuters on Friday.

Savings from union concessions, including for many city employees the equivalent of nearly 5 percent wage cuts for the next two fiscal years, will be considerable, Newsom said:

“North of a quarter of a billion dollars.”

Along with other compromises, including furloughs and some outsourcing, massive layoffs will be averted, Newsom added.

SAN FRANCISCO, June 4 (Reuters) – Former eBay Inc Chief Executive Meg Whitman holds a two-to-one lead among voters over California Insurance Commissioner Steve Poizner in their race for the Republican nomination for governor, according a Field Poll report released on Friday.

Poizner, a former Silicon Valley entrepreneur, since March has nearly halved billionaire front-runner Whitman’s lead in their race for the party’s nomination but he faces a seemingly insurmountable gap as California’s June 8 primary election nears, said Field Poll Director Mark DiCamillo.

“The odds are clearly in Whitman’s favor,” DiCamillo said. “There is not a lot there to move it over into Poizner’s column.”

San Francisco-based Field Poll’s final pre-election survey on the race found Whitman leading Poizner by a 51 percent to 25 percent margin among likely Republican primary voters, with another 6 percent preferring other candidates and 18 percent undecided.

Worse for Poizner is that the Field Poll found Whitman strongly favored across the Republican spectrum, including its conservative core.

She leads Poizner among voters identifying themselves as strongly conservative by 52 percent to his 26 percent and enjoys a big lead with Republicans identifying with the populist Tea Party movement.

“Among this segment of voters Whitman holds a thirty-point lead, only marginally greater than the twenty-three point lead she holds among those who do not identify a lot with the Tea Party,” the Field Poll report said.

SAN FRANCISCO (Reuters) – Two years after Vallejo, California, filed for bankruptcy protection, officials in nearby Antioch are also tossing around the ‘B’ word.

Antioch’s leaders earlier this month said bankruptcy could be an option for the cash-strapped city of roughly 100,000 on the eastern fringe of the San Francisco Bay area.

Antioch’s fiscal woes are standard issue for local governments in California: weak revenue from retail sales and property taxes is forcing spending cuts, layoffs and furloughs.

But cost-cutting measures may not be enough to keep Antioch’s books balanced, so its city council is openly discussing bankruptcy.

“We just want to alert people to the possibility,” Antioch Mayor Pro Tem Mary Helen Rocha said.

Orange County Treasurer Chriss Street would not be surprised if more local governments across the Golden State sound a similar alarm.

Street expects more talk of municipal bankruptcy across California because local government finances are in such dire shape — a situation underscored on Wednesday when a top finance officer for Sacramento County projected a worse-than-expected shortfall for the county of $181 million, which could force more than 1,000 layoffs from the county’s payroll.

NEW YORK/SAN FRANCISCO (Reuters) – State governors working to close yawning deficits are again eyeing a tempting target — the billions of dollars in benefits and wage hikes that public workers won in boom times.

So far, they have achieved only limited success due to ironclad union contracts, federal and state constitutional protections and lawsuits filed by public workers and others.

The stakes are high. All 50 states have a collective $1 trillion shortfall in their retirement funds, says the Pew Center on the States in Washington.

Some states have hired private workers in certain fields, from prisons to computers. Others have merged agencies, such as Massachusetts, which twinned its mass transit and highway arms.

But another initiative that Massachusetts hopes will save $1 billion over 20 years is more challenging. The commonwealth is waiting for a court to say whether it can cut health benefits for unionized transit workers, said Michael Widmer, president of the Massachusetts Taxpayers Foundation.

“This could be the straw that breaks the back,” he said.

The case in Massachusetts, where riders are already expected to endure fare hikes and service cuts for the next several years, illustrates a hurdle for other states faced with unions that enjoy considerable political clout.