Washed It!

General Motors Co. is set to reemerge as a public company this week in one of the year’s hottest initial public stock offerings, but many American taxpayers who helped rescue the company won’t be going along for the ride.

That’s because most Americans won’t have access to the new shares of the Detroit automaker. And many of those who do are likely to be well-heeled customers at big Wall Street firms.

The situation is not much of a surprise on Wall Street, where little guys often are shut out of deals, especially coveted ones where demand far outstrips supply and where fast-rising prices usually provide quick profits to anyone getting IPO shares.

But some experts said an opportunity to reward average Americans is being wasted, even though the Treasury Department said two months ago that individuals would have “ample opportunity” to participate in the IPO.

“Wall Street thumbed its nose at” individual investors, said David Menlow, president of research firm Ipofinancial.com. “We continue to help Wall Street out, and Wall Street seldom feels the need to say thank you.”

Concern about small investors getting a piece of the action underscores the nation’s outrage over the massive bailouts of banking and auto companies during the deepest recession since the Great Depression. Even the four major banking companies handling the IPO deal were bailed out by taxpayers.

The federal government put nearly $50 billion into GM to rescue it and usher it through Bankruptcy Court last year, ending up with a 61% ownership stake in the company.

On Thursday, when the offering goes public, the new owners are likely to include a wide swath of investors from large U.S. mutual funds to foreign entities, such as sovereign wealth funds and China’s largest car company, SAIC Motor Corp.

The major underwriters are JPMorgan Chase & Co., Morgan Stanley, Bank of America Corp. and Citigroup Inc. — all of which received billions of taxpayer dollars to rescue them during the severe credit crunch in the recession.

In one twist from the ordinary IPO, a number of female- and minority-owned brokerages are involved in the deal. Among them are Loop Capital Markets in Chicago and Williams Capital Group in New York. Helping to market shares overseas are China International Capital Corp. and two Brazilian banks, Itau and Bradesco.

“There is just an inordinate amount of foreign companies in this considering this is taxpayer money,” said Bill King, president of female-owned M. Ramsey King brokerage outside Chicago. He said his firm didn’t receive the customary request for information from the Treasury Department asking it to participate.

The IPO is garnering such demand that underwriters reportedly are expected to boost the price of initial shares to more than $30 from the stated range of $26 to $29.

The automaker plans to sell 365 million shares, or roughly one-quarter of the company, in a deal currently worth about $10.6 billion.

The Treasury Department is expected to sell $7 billion to $8 billion of its holdings, reducing its position to as little as 43%. GM has repaid $7.4 billion to the government and agreed last month to repay an additional $2.1 billion by repurchasing preferred stock from the government once the IPO closes.

By some measures, individual investors could fare better than they normally do in coveted IPOs.

Underwriters are expected to allocate about 20% of the shares to so-called retail investors, more than the 15% that’s normal in IPOs, said Scott Sweet, senior managing partner at IPO Boutique.

However, Sweet said, there were rumors last week that as much as 30% of the deal would go to individuals before demand rose among large institutional investors, forcing the retail amount to be scaled back.

Discount brokerage firms such as Charles Schwab Corp. and TD Ameritrade aren’t getting shares to allocate to their customers. Those firms sometimes get IPO shares, though it varies from deal to deal.

“In general, the hotter the IPO the harder it is to get an allocation of shares,” said Ram Subramaniam at TD Ameritrade. “We’d have loved to have gotten GM’s IPO. We just don’t have it.”

Access to General Motors stock offering won’t include many of its rescuers

With their eyes on the 2012 election, Republicans are preparing to maximize conflict with Democrats over healthcare in the new Congress and minimize potential compromises, according to GOP strategists, lawmakers and lobbyists.

That strategy is setting the stage for a bitter stalemate on Capitol Hill over the next two years as the president and senior congressional Democrats dig in to defend their signature achievement.

But Republican leaders and strategists think a renewed battle over healthcare will help the party expand its electoral gains and drive President Obama from the White House.

“Republicans have successfully challenged the healthcare legislation once,” said GOP strategist Frank Luntz. “They’ll do it again.”

Luntz, a leading architect of the Republicans’ successful campaign to cast the healthcare legislation as a ” Washington takeover,” said Democrats would suffer further if they tried to defend the law. “Democrats have more to lose,” he said.

In practical terms, the GOP approach will probably mean little congressional input over how the law is actually implemented. The Obama administration will retain broad authority to refine the law on its own, working with businesses, consumer groups, healthcare providers and state regulators, healthcare experts say.

While lawmakers deadlock on Capitol Hill, GOP leaders already have a target list of Democratic senators who are up for reelection in two years in traditionally red states including Missouri, Montana, Nebraska and Virginia.

“The next couple of years, in some ways, become about the 2012 elections,” Republican healthcare lobbyist Dean Rosen said last week at an Alliance for Health Reform briefing in Washington.

The GOP tactics mirror those deployed by Democrats after their 2006 electoral sweep.

Then, Democratic House and Senate leaders who had won majorities on a promise to challenge President George W. Bush’s Iraq war strategy bullied congressional Republicans by repeatedly forcing them to vote to support the unpopular war.

The Democrats’ legislative campaign ultimately collapsed. Bush used his veto pen to block legislation mandating troop withdrawals. Within a year, the Bush administration’s effort to stabilize Iraq with a troop surge showed signs of success.

Many Democrats think they too will be vindicated as the public sees more of the benefits of the new healthcare law.

Whit Ayres, a longtime GOP pollster, warned that Republicans risked a backlash if voters perceived them as more interested in scoring political points than in responding to voters’ concerns.

“There is no particular love for the Republican Party in the electorate,” he said at a recent Health Affairs forum. “Republicans are going to have to earn [voters'] support and earn their respect, and the way you do that is by governing responsibly.”

Most of the healthcare law’s major benefits — including its guarantee of coverage to all Americans — do not go into effect until 2014. And there are few signs the law is getting more popular.

In the interim, Republicans, who think the law was crucial to their electoral gains, are increasingly confident they can showcase its shortcomings and further weaken already tepid public support for Democrats.

“They are looking for ways to be very aggressive,” said Michael Franc, who works closely with congressional Republicans as head of government relations for the conservative Heritage Foundation.

Republicans provided a preview of their strategy before the midterm election as House GOP leaders forced Democrats to vote in June and September on proposals to repeal provisions of the healthcare law.

GOP leaders have indicated they intend to do more when they control the flow of legislation in the House next year, with likely votes to defund the law and excise controversial parts such as cuts in Medicare spending and a new mandate requiring Americans to get health insurance.

Republicans are spoiling for a healthcare fight

At Sami Abu Hossein’s cramped bookstore, the hundred or so book titles listed on a wall aren’t bestsellers. They’re banned.

And the cheery Abu Hossein can you get you any of them, sometimes in the few minutes it takes to sit down and drink a cup of thick-brewed Turkish coffee.

“There are three no-nos,” the owner of Al Taliya Books explains with a big smile. “Sex, politics and religion. Unfortunately, that’s all anyone ever wants to read about.”

He laughs uproariously.

“These are all the banned ones,” he says, gesturing to the list taped to the wall above the store entrance, books on sexuality to ones that critically examine the life and times of the prophet Muhammad, the most taboo topic in the Arab world.

“We have them,” he says, grinning broadly, “but don’t tell anyone.”

The tubby father of five seems to get a tremendous kick out of bucking the rules. (Not that they’re strictly enforced; he’s never been arrested or even summoned by the authorities.)

His partner in thought crime is Hossein Yassin, a self-described Marxist in a worn beige linen suit. Abu Hossein summons his wiry 48-year-old comrade in for the really tough jobs.

Yassin jokes that he’s the Special Forces for getting banned or hard-to-find books. He makes allusions to a murky past as an underground revolutionary. He says he calls upon a network that stretches across the Middle East to locate and transport hard-to-find titles.

“I can get any book,” he boasts. “But don’t ask how I get them.”

The most widely requested banned book remains “The Satanic Verses,” the 1988 novel that suggested some parts of the Koran weren’t God’s words and thereby earned its author, Salman Rushdie, a fatwa issued by Iran’s Ayatollah Ruhollah Khomeini and the hatred of pious Muslims worldwide.

Other top requests include “23 Years,” by the Iranian scholar Ali Dashti, which questions miracles ascribed to Muhammad in the Koran; and “The Joke in the Arab World,” by the Egyptian writer Khaled Qashtin, a sarcastic view of the Middle East, its rulers and customs.

Abu Hossein’s shop, in the capital’s rambling but lively downtown, also sells nonblacklisted books. His shelves are filled with titles from serious political studies about the Middle East to romance novels and pirated software manuals.

But his shop is known as the place in Amman to get forbidden fruits of knowledge.

Censoring books in the age of the Internet may seem like a quaint idea. Even the government official in charge of restricting them recently announced in a newspaper article that “stopping books from reaching the people is a page we’ve turned.”

The censor, Abdullah Abu Roman, occasionally stops by the bookstore to hobnob with Abu Hossein. So do plainclothes security officials. Abu Hossein serves them his Turkish coffee. They very politely ask him for the copies of the forbidden books. He hands them over. It’s all very civilized.

“Allah maakon,” he bids them farewell. God be with you.

“They are very sensitive to politics and criticism of politicians,” says Abu Hossein, who has been working at his family shop for decades. “But there are some books that are banned arbitrarily. Sometimes a censor will ban a book for a sentence he doesn’t like.”

A thickly bearded man wearing a headdress and flowing white dishdasha walks in. He’s one of the regulars, a Saudi religious scholar named Thaer Balawi who perhaps enjoys the challenge of subjecting his puritanical Salafist beliefs to the scrutiny of critical intellects. “You can’t stop an idea by censoring it,” he says.

“Mamnoueh maqroubieh,” goes the Arabic proverb. All that is forbidden is desired.

Abu Hossein recalls a memoir by a former interior minister that the censors immediately forbade for its sensitive revelations. It became a bestseller. But later, the political sands shifted, and the book was removed from the blacklist. Now it hardly sells.

In walks Raed Toguj, iPod ear buds firmly in place, a Web designer in his 20s with a penchant for philosophy and social theory. Censorship, he says, is a product of political ideology. “What I see as the solution is critical thinking,” he says.

Toguj acknowledges that the Internet has made his task superfluous. Many banned books are already available for download, and those with money can order copies from online bookstores abroad.

But Abu Hossein and his customers insisted that there’s something special about holding a book in your hand, feeling its pages, gabbing with the bookseller and fellow seekers of knowledge, like Carol Kaplanian, a 29-year-old doctoral student writing a thesis on honor killings of women in the Middle East, picking through a pile of books on gender relations.

The afternoon wears on. Abu Hossein keeps serving cups of coffee for his guests, the Salafist, the communist, the feminist and the Web dude with a passion for philosophy. They sift through titles and chat quietly, their murmurs softened by the stacks of books surrounding them.

daragahi@latimes.com
In Jordan, a bookstore devoted to forbidden titles

His white shirt pressed, the chef glides through the crowd like a ship in full sail, checking tables, nodding to waiters. His world is full of hurry but he is not rushed. He sits down in the shade, wiping his brow amid a lunchtime crowd of gunrunners, clan elders, beggars and bankers.

They drift down unnamed roads toward his tables, the air sweet with meat, crushed vegetables, sprigs of spearmint. Scores of diners at a time cram elbow to elbow slurping and scooping at the edge of town, where big trucks haul white stone down from the mountains.

They know Abdulkarim Harazi has three wives, 18 children, a worn dagger and the humor of a man not done in by adversity. When he speaks, his customers, sopping broth with soft bread, listen, knowing that no matter how circuitous or embellished the tale, there’ll be wisdom waiting at the end.

“You handle a big family with justice,” says Harazi, pausing the way he does, eyes bright with mischief. “Justice means sleeping with one wife one night and another wife the next. This brings balance. Justice can’t control some things, though, like the passion of the heart.”

Harazi’s fires spit blue flames and hum like storms, searing blackened bowls filled with a traditional meat dish called fasha and a stew known as saltah. Thick with chilies, herbs, onions, potatoes, coriander and maybe a speck of cilantro, the meals bubble and cool beneath conversations of impatient men.

“Quality and cleanliness are the keys” to a fine meal, Harazi says.

His waiters have blistered fingers and gold-trimmed caps. From sunrise to just before dusk, they serve 1,300 pounds of beef and 660 pounds of vegetables to 4,000 diners at the Fakhi restaurant. Nobody rests, not the ladle men, nor the dicers, knives chopping, oil hissing at the culinary crossroads of the capital, where, for a brief moment and a few dollars, businessmen sit with junkmen for a taste that’s the same to everyone.

The main floor is shaded and dim, the tables long. Finding a seat requires cunning and swiftness and dodging men with quick hands. Some have guns, most have daggers. Outside, down steps faded by sunlight, more tables are lined beneath narrow shelters and there’s a feeling of an army encamped beneath the hills circling the city. From the road, amid clatter and the glow of fires, the word is that eating lunch anywhere else would be a pitiful miscalculation.

The men — not a woman in sight — speak of private misfortunes and national troubles. A land of deserts, rock ridges and sea coves, Yemen is both beautiful and tormented. Rebellions rattle north and south, Al Qaeda fighters roam the outlands and the Americans are talking about missile strikes and the cost of terror. Poorest country in Arab world, that’s what they keep saying, a place of thin wallets and drought. Here, though, you polish your spoon, stay away from the flame and eat.

“It’s simple,” says Harazi. “The cost of living is too high and the country is too unstable. It’s all about food and worry these days. There’s no hope because you can’t see anyone improving around you. I try to do the best for my children. Education, they must have that.”

He’s a solid man with thick hands and black stubble, settling into his chair like a priest hearing confessions. He knows that life needs places like this restaurant, reliable and intimate as home but without home’s predictability. You never know who might pull up on a motorcycle or amble in from the fringes. Harazi’s eyes gather them all, watching, ever watching.

By midafternoon the men are restless, waiting to dip into crinkly bags of shiny narcotic khat leaves that will mellow them out until way past sunset. It’s a ritual as common as sleeping or waking. Nearly everyone at the restaurant finishes lunch and chews khat, cheeks bulging, eyes calm, the world suddenly fixable.

“Khat makes you forget about things,” says Harazi. “Khat gives you many ideas, but behind them is no planning.”

He laughs.

Wheels spin through gravel; a tribal leader in an SUV arrives in the parking lot, draped by dust and a well-armed entourage. Diners pause. No shots fired. Spoons resume. The leader, kissing cheeks, slapping backs, finds a seat.

“Look at that,” Harazi says, “Barack Obama doesn’t have as many bodyguards.”

“How many employees do you have?” someone asks.

Harazi looks around and whispers.

“One hundred, but if the taxman comes, only 20.”

Food for thought at one culinary crossroads in Yemen

Newly elected Assemblyman Jeff Gorell is on a mission, it just wasn’t the one he expected.

In March, the freshman Republican from Camarillo, a Navy reservist, will trade his business suit for combat fatigues and report for a year’s duty in Afghanistan. Never mind that he hasn’t yet hired a staff, opened an office or introduced legislation.

He’s still working out a more basic question: How will he run his office during his 12-month absence?

Gorell briefly considered asking the Legislature to pass an emergency bill allowing him to nominate a temporary replacement. When it became clear that would violate the state’s constitution, he decided instead to take a leave of absence, relying on staff and friendly Republican colleagues to attend to business in his Ventura County district.

The former prosecutor and college lecturer, 40, acknowledges it’s not the ideal way to launch a political career. But he’s accepted his pending deployment with the same earnestness that has made him widely appealing in his conservative-leaning 37th district.

“It’s a misfortune of timing,” said Gorell, a moderate who’s holding office for the first time. He easily defeated Democrat Ferial Masry for the district covering Camarillo, Thousand Oaks, Moorpark and Simi Valley. “I’m going to work really hard to prove that I will be the hardest-working legislator in the building. I’ll get as much done in 31/2 months as most do in 12.”

Gorell is the first legislator in California to be deployed for active duty since World War II, though legislators in other states have found themselves in the same predicament 51 times since Sept. 11, 2001, according to the chief clerk of the Assembly’s office.

Army Reservist Tom Umberg was absent from the final months of his 2004 campaign for the Assembly as he helped prosecute terrorism suspects at Guantanamo Bay, Cuba. But the Orange County Democrat was back home by the time his Assembly term began.

Federal and state laws mandate that Gorell can return to his job once his tour ends. But states are handling what to do in legislators’ absence in different ways. Texas and five other states allow for a temporary fill-in. Legislator-soldiers in Pennsylvania, on the other hand, have taken leaves of absence.

A California military code written during the Korean War mentions the option of a temporary replacement if the Legislature authorizes it. But the state has never taken that step, Gorell said, and after consulting with lawyers he determined it probably wouldn’t be legal because the state’s constitution says vacancies must be filled by special election.

Assembly Speaker John A. P

For years in her native Myanmar, Aung San Suu Kyi has been known simply as “The Lady,” a pro-democracy stalwart and Nobel Peace Prize laureate who has languished for years in an arbitrary solitary confinement imposed by the nation’s ruling military junta.

Although she was snatched from the public limelight, residents of the former Burma have always known this about the charismatic Buddhist activist, now 65: She would not be broken by the military generals she has long defied.

On Saturday, Suu Kyi proved them all right. She was finally released from the mildewing, two-story villa where she has spent much of her house arrest, spanning 15 of the last 21 years.

Whether in prison or not, supporters say, she has remained a quiet but defiant symbol of struggle against political repression for residents of the impoverished Southeast Asian nation.

Always cutting a slight figure, the daughter of a national hero who had generations earlier campaigned for Burma’s independence from Britain endured personal hardship to uphold her political principals, often going years without seeing her husband or sons.

But as popes, presidents and activists called unsuccessfully for her release, she never wavered. Once asked if she thought her story had the makings of a Greek tragedy, she responded: “Don’t be silly. I don’t go in for melodrama.”

She later added: “I look upon myself as a politician. That’s not a dirty word, you know. Some people think that there is something wrong with politicians. Of course, there is something wrong with some politicians.”

Time and again, Suu Kyi showed her mettle since taking up the democracy struggle in 1988.

Spending much of her early life abroad, Suu Kyi had returned home that year just as street protests erupted against a quarter-century of military rule. The daughter of martyred independence leader Gen. Aung San, she quickly assumed a leadership role.

Then 44, she campaigned for the government to stage proper elections and became the first secretary general of the fledging National League for Democracy.

Explaining why she risked prison or worse by taking on the nation’s military, she responded: “I could not, as my father’s daughter, remain indifferent to all that was going on.”

Her unsuccessful efforts to stop a brutal military suppression that killed thousands of protestors, repeatedly facing own armed soldiers, gained her worldwide notoriety, including the 1991 Nobel Peace Prize, being proclaimed by the Nobel committee as “an outstanding example of the power of the powerless.”

But Suu Kyi’s sons, Alexander and Kim, accepted the award in Oslo on behalf of their mother who, seen as a threat by the country’s new military rulers, was detained in 1989 on national security charges.

She spent the next six years under house arrest at the family home at 54 University Avenue, enduring various periods in detention since then. Over the years, she has waged repeated hunger strikes to call attention to the military’s brutal repression of protesting students.

But Suu Kyi endured. When her husband, British scholar Michael Aris, died in London in March 1999, they had only seen each other a handful of times since her first house arrest a decade earlier.

Press reports have painted her life in captivity as austere. Rising each day at 4 a.m., she meditated, read and listened to one of five radios that were her only link to the outside world. She had no telephone, no television, no Internet. Her mail, if delivered at all, was heavily censored.

Once an accomplished pianist, Myanmar’s muggy equatorial heat long ago warped her instrument. Her only companionship: two long-serving, mother-and-daughter assistants.

Recent months have brought particular frustration. Suu Kyi was just a few weeks away from being released last year when she had an unexpected visit by an American, John Yettaw. She was found guilty of harboring anti-government elements and her sentence was extended.

At the time, one of her assistants told reporters: “It has been a hard life, she has sacrificed a lot. But she is used [to it] now. And she keeps working, waiting for the day she will be released.”

john.glionna@latimes.com
Suu Kyi outlasted her oppressors

The leaders of the world’s 20 major economies on Friday ended a frequently rancorous two-day summit in this northeast Asian capital without reaching agreement on specific steps to avert damaging currency and trade wars.

There were far more setbacks than gains, but President Obama suffered the biggest disappointment, falling short in his attempt to forge a unified approach to boosting the global economy.

In one blow, G-20 members refused to endorse a U.S. effort to force China to raise the value of its currency, prolonging a bitter dispute that many say could eventually lead to a global trade war. Before world leaders left the city, they issued a watered-down statement agreeing merely to refrain from “competitive devaluation” of currencies.

The joint statement described their intent to promote growth while balancing trade and exchange rates and avoiding protectionist policies in general. U.S. officials described it as a substantial deal that will help relieve some of the pressure on countries suffering big trade deficits. But nations are under no binding obligation to follow the agreements.

The previous day, the U.S. and South Korea acknowledged that they remained in a stalemate over a free-trade agreement that has languished in the national legislatures of both nations.

In his final speech, Obama put a positive spin on a disappointing summit, saying that the world’s developed and developing economies have been successful in putting the global economy back on a path toward recovery.

Yet he acknowledged that the summit nations risk slipping back into the old imbalances that contributed to the global economic crisis.

Still, he would not admit defeat in back-door meetings that often seemed on the verge of breaking into hostility.

“The work that we do here is not going to seem dramatic. It is not always going to be world-changing. But step to step, what we’re doing is building stronger international mechanisms and institutions” and reducing tensions among nations, Obama said.

He also blamed the media, saying that the reporting on the G-20 summit has been “all about conflict,” while ignoring that what was accomplished.

He stressed that G-20 leaders made strides, including the development of a system to give the international community a mechanism to determine whether countries are engaging in unfair practices with their trading partners.

“Sometimes I think naturally there’s an instinct to focus on the disagreements,” the president said, when in fact “in each of these successive summits we’ve actually made progress.”

But time and again in Seoul, world leaders showed that they were in no mood to compromise and instead were headed toward broad, general pledges that did little to mask their inability to find common ground for immediate action.

At times, that failure to find consensus raised the specter of countries pursuing their own interests at the expense of coordinated and balanced global growth.

British Prime Minister David Cameron warned of the risks of that route at the summit opening, saying failure by the G-20 to accomplish some sort of global accommodation could lead to “a return to what happened in the 1930s: protectionism, trade barriers, currency wars, countries pursuing beggar-thy-neighbor policies; trying to do well for themselves but not caring about the rest of the world.”

Many countries, however, appeared to be doing just that. In particular, they took aim at the Federal Reserve’s recent decision to pump $600 billion into the U.S. financial system, a move that critics saw as an attempt to lower the value of the dollar and therefore make U.S. exports more competitive.

As the leaders gathered in Seoul, Bank of China Chairman Xiao Gang called the Fed’s move “dangerous,” writing in the semiofficial China Daily newspaper that it had driven the dollar down in value, raised expectations of inflation and hurt other economies. That position was backed by former Federal Reserve Chairman Alan Greenspan, who said the U.S. was “pursuing a policy of currency weakening.”

U.S. officials declared they were doing no such thing. And, in fact, the U.S. dollar has been rising in value in recent days.

“We will never seek to weaken our currency as a tool to gain competitive advantage or to grow the economy,” Treasury Secretary Timothy F. Geithner told CNBC from Seoul. “It’s not an effective strategy for any country, and it’s not for the U.S. We’ll never do that.”

G-20 summit ends with watered-down agreement

As Jerry Brown prepares to take over as governor, California faces a $25.4-billion deficit — far larger than state officials were projecting only days ago — the state’s chief budget analyst said Wednesday.

The figure, projected over the next year and a half, results from billions of dollars in phantom savings approved by Gov. Arnold Schwarzenegger and legislators last month, more budget restrictions passed by voters last week and predictions of a “painfully slow economic recovery,” according to the report from the nonpartisan Legislative Analyst’s Office.

In addition, more than $8 billion in temporary sales, car and income taxes are set to expire in the coming year, and the federal stimulus program that has helped prop up schools, healthcare for the poor and other state programs also will soon disappear.

The report shows $20-billion annual shortfalls in future years as well.

“There is no good news,” said Legislative Analyst Mac Taylor.

Simply keeping K-12 public schools funded at their current level would expand the deficit, Taylor said. That is because billions of dollars in school cutbacks are already factored in.

The predicted $25.4-billion deficit is the equivalent of about 29% of this year’s general fund budget. Erasing the gap will require a combination of severe cuts and more in tax collections over several years, the report said.

“They have to consider everything,” Taylor said of lawmakers and the governor-elect.

Brown, on a post-election vacation, was unavailable for comment. He is scheduled to return to Sacramento next week. One of his campaign pledges was that he would not raise taxes without voters’ approval.

Republicans immediately vowed to block any tax hikes, and Democrats pledged to protect core programs and jobs and to use the shortfall as a reason to restructure government. Senate minority leader Bob Dutton (R-Rancho Cucamonga) called for an emergency legislative session to immediately address the projected deficit.

Schwarzenegger signed the latest spending plan in modern history last month, 100 days into the fiscal year. The analyst’s report Wednesday estimated that $6 billion, or roughly a third, of the deficit-cutting that the governor and legislative leaders said they achieved will never materialize.

Prisons spending will outpace what was budgeted only a month ago by $965 million, and overly rosy assumptions of a helping hand from Washington will prove too optimistic by $3.5 billion, according to the report.

Any future aid from the nation’s capital, where Republicans decisively seized control of the House of Representatives last week on promises to curb federal spending, is also unlikely.

“Good luck,” Rep. Howard P. “Buck” McKeon (R-Santa Clarita) said Wednesday. “We’re going to be trying to reduce spending here, not increase spending.”

Taylor sought to lower expectations that a robust economic recovery would pave the way for California’s return to solvency. His report reduces tax receipt estimates for the current year, citing a “sluggishly” improving economy.

Tax collections in California — a center of the mortgage boom and bust — won’t return to their peak levels of 2007-08 until 2015-16, the report forecasts.

“It’s not just budget, it’s also the economy,” said Assembly Budget Committee Chairman Bob Blumenfield (D-Woodland Hills).

Taylor projected a $22.4-billion deficit in fiscal 2012-13. That ebbs only slightly to $19.4 billion by fiscal 2015-16. Even those bleak figures could prove optimistic: They assume no cost-of-living adjustments and that California will win all pending lawsuits against the state.

Voters widened the deficits last week by approving two measures that constrain legislators’ ability to assess fees on businesses and to take funds from local governments. Combined, the measures unravel $800 million in savings this year and up to $1 billion annually in the future, the report said.

But Californians also voted to allow the Legislature, which Democrats control, to pass budgets with a simple majority rather than a two-thirds vote. That could eliminate the need for GOP approval, which has often stalled the budget process. But a two-thirds vote is still required to raise taxes, which necessitates some Republican support.

shane.goldmacher@latimes.com

Times staff writer Richard Simon in Washington, D.C., contributed to this report.

Estimated state budget deficit reaches $25.4 billion

After a survey of U.S. troops and their families, a Pentagon study group has concluded that the military can lift the ban on gays serving openly in uniform with only minimal and isolated incidents of risk to current war efforts, the Washington Post reported Wednesday.

The newspaper quoted two people familiar with a draft of the study, which is to be completed for Defense Secretary Robert Gates by Dec. 1., but with an uncertain public release date.

More than 70% of respondents to a survey sent to active-duty and reserve troops over the summer said the effect of repealing the military’s “don’t ask, don’t tell” policy on gays and lesbians in uniform would be positive, mixed or nonexistent, the sources told the newspaper.

The newspaper said the survey results have led the report’s authors to conclude that objections to openly gay colleagues would drop once troops were able to live and serve alongside them.

The long, detailed and nuanced report will almost certainly be used by opponents and supporters of repeal legislation to bolster their positions in what is likely to be a heated and partisan congressional debate. And it is expected to reveal challenges the services could face in overturning the long-held policy, including overcoming fierce opposition in some parts of the force — primarily in the Army and Marine Corps — even if they represent a minority.

The Marine Corps commandant, Gen. James Amos, last week said that with forces fighting in Afghanistan and still deployed in Iraq, now was the wrong time to lift the ban.

“This is not a social thing. This is combat effectiveness,” Amos said.

That brought a mild rebuke from Joint Chiefs of Staff Chairman Mike Mullen, who said he was surprised that Amos had spoken publicly. He said the heads of the military services had committed to “look at the data and then make our recommendations privately.”

The Post said Gates, Mullen and uniformed and civilian leaders of the four military branches received copies of the draft report late last week.

The document totaled about 370 pages and is divided into two sections, the newspaper said. The first section explores whether repealing “don’t ask, don’t tell” would harm unit readiness or morale. The second part of the report presents a plan for ending enforcement of the ban. It is not meant to serve as the military’s official instruction manual on the issue but could be used if military leaders agreed, one of the sources told the newspaper.

Among other questions, the survey asked whether having an openly gay person in a unit would have an effect in an intense combat situation. Although a majority of respondents signaled no strong objections, a significant minority is opposed to serving alongside openly gay troops. About 40% of the Marine Corps is concerned about lifting the ban, according to one of the people familiar with the report, the Post said.

Pentagon spokeswoman Cynthia Smith said that of the 400,000 surveys sent randomly to troops, 115,052 responded. An additional 150,000 surveys were sent to spouses with 44,266 completed. Defense officials have said they were pleased with the response rate and believed it was enough to get an accurate sampling of the force.

President Obama has vowed to end the policy. A Democratic proposal to repeal the 1993 law already has passed the House as part of a broader defense policy bill that includes such popular provisions as a pay raise for the troops. But that same legislation sank in the Senate under Republican objections just weeks before the Nov. 2 elections.

Senate Majority Leader Harry Reid (D-Nev.) has promised another vote by year’s end, although the political dynamics in this lame-duck session haven’t changed much. Gates has asked Congress to act before January, but Senate Democrats still hold a shaky majority and they are unlikely to give in to Republican demands for a protracted debate.

A Republican gay rights group, the Log Cabin Republicans, has challenged the constitutionality of the policy in court. The Obama administration on Wednesday urged the Supreme Court to keep the “don’t ask, don’t tell” policy in place while a federal appeals court considers the issue.

The administration filed court papers in defense of an appeals court order that allowed “don’t ask, don’t tell” to go back into effect after a federal judge declared it unconstitutional and barred its enforcement. The U.S. 9th Circuit Court of Appeals in San Francisco is reviewing the administration’s appeal.

The Log Cabin Republicans asked the Supreme Court to step into the case to reverse the appeals court decision that has allowed “don’t ask, don’t tell” to remain in effect despite the order by U.S. District Judge Virginia Phillips.

Among several recommendations, the Pentagon report urges an end to the military ban on sodomy between consenting adults, regardless of what Congress or the federal courts might do about “don’t ask, don’t tell,” the source told the Post.

The report also concludes that gay troops should not be put into a special class for equal employment or discrimination purposes, that person said. The recommendation is based on feedback the study group obtained from gay troops and same-sex partners who said they do not want a special classification, according to the source.

The report recommends few, if any, changes to policy covering military housing and benefits because the military must abide by the federal Defense of Marriage Act, which does not recognize same-sex marriage.
Pentagon draft study shows low risk to ending ‘don’t ask’ policy

In a sharp setback, the United States and South Korea failed to reach agreement on an elusive free-trade deal but will continue pressing for an accord in the weeks ahead, President Obama said Thursday.

Obama had hoped to announce a deal on the long-stalled pact while in South Korea for meetings of the Group of 20 economic powers, but instead he will return home empty-handed.

“We have asked our teams to work tirelessly in the coming days and weeks to get this completed,” Obama said at a joint news conference with South Korean President Lee Myung-bak.

“We don’t want months to pass before we get this done,” Obama said. “We want this to be done in a matter of weeks.”

Prospects for reaching a deal seemed unlikely before Obama’s meeting and subsequent appearance with his South Korean counterpart.

At issue is a pact to slash tariffs and other barriers to trade, one that was signed in 2007 when previous administrations were in power. It remains unratified by lawmakers in both countries, and trade between the nations has slipped. The U.S. wants the deal to address a trade imbalance and beef access to South Korea’s market before submitting it to Congress.

Earlier in the day in a speech marking America’s Veterans Day, Obama condemned North Korea for continuing on “a path of confrontation and provocation” that he says deepens its isolation from the world and worsens the poverty of its people.

Obama said the reclusive communist nation must show a “seriousness of purpose” before the U.S. will restart six-party talks aimed at curbing the country’s drive to become a nuclear power.

He saluted the bravery of U.S. troops who defended South Korea during its war with North Korea.

Speaking at an Army garrison in a country where the U.S. keeps more than 28,000 troops, Obama said North Korea knows the path to prosperity and suggested its leaders take it.

“Because the Korean War ended where it began geographically, some used the phrase ‘Die for a Tie’ to describe the sacrifice of those who fought here,” Obama said. “But as we look around at this thriving democracy and its grateful, hopeful citizens, one thing is clear: This was no tie. This was victory.

“This was a victory then, and it is a victory today,” he said.

In the Veterans Day address, Obama said that, some 60 years after the war, the Korean peninsula provides the world’s clearest contrast between a society that is open and one that is closed, between a dynamic, growing nation like South Korea and a North Korea “that would rather starve its people than change.”

“It’s a contrast that’s so stark you can see it from space, as the brilliant lights of Seoul give way to utter darkness in the North,” he said, describing the difference as a direct result of the road taken by the reclusive, communist North.

Obama said the U.S. “will never waver” in its commitment to South Korea’s security and that North Korea’s continued pursuit of nuclear weapons will only lead to more isolation and less security. He urged Pyongyang to take another path, a road that he said will offer its people growing opportunity instead of crushing poverty.

The commander in chief spoke inside a packed gymnasium, addressing a uniformed audience of service members from the different branches of the U.S. military. They surrounded him from all sides and many snapped photos as he spoke.

Obama condemned North Korea, saying its circumstances were not “an accident of history” but a direct result of the country choosing “a path of confrontation and provocation.” That path, Obama said, includes its relentless pursuit of nuclear weapons and the deadly sinking earlier this year of a South Korean warship.

“In the wake of this aggression, Pyongyang should not be mistaken: The United States will never waver in our commitment to the security of the Republic of Korea. We will not waver,” he said. “The alliance between our two nations has never been stronger, and along the with the rest of the world, we have made it clear that North Korea’s continued pursuit of nuclear weapons will only lead to more isolation and less security.”

Obama said North Korea has another path available to it.

“If they choose to fulfill their international obligations and commitments to the international community, they will have the chance to offer their people lives of growing opportunity instead of crushing poverty — a future of greater security and greater respect; a future that includes the prosperity and opportunity available to citizens on this end of the Korean peninsula,” he said.

After the speech, Obama laid a wreath at a war memorial.
U.S. fails to reach free-trade deal with South Korea