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Governor swings budget ax

The governor proposes selling state properties including the LA Coliseum. (George Wilhelm / Los Angeles Times)
The governor proposes selling state properties including the LA Coliseum. (George Wilhelm / Los Angeles Times)

SACRAMENTO — Gov. Schwarzenegger proposed dire budget plans Thursday that slash core public services and push California's financial problems into future years as the state struggles to survive the economic downturn.

Under the governor's scenarios, schools could let out students five to seven days early, an oil company would drill into waters near Santa Barbara, and low-income elderly and disabled residents would receive smaller grants.

Schwarzenegger offered two proposals Thursday — one that bridges a $15.4 billion gap if three ballot measures pass next week, and another that closes a $21.3 billion shortfall if the measures fail. The latter plan was different largely in the severity of school cuts and burdens on cities and counties.

"This is the harsh reality of the crisis we face," Schwarzenegger said. "Sacramento is not Washington. ... We can't spend what we don't have."

The Republican governor's proposals to balance the budget include up to $9 billion in cuts — as much as $5.4 billion of which could come from schools. They include laying off 5,000 state workers and borrowing $7.5 billion from strapped local governments and a cash-barren investment market.

Majority Democrats said the numbers were realistic and promised to consider his ideas swiftly, but they didn't commit to passing his cuts. The reductions slice core Democratic priorities.

"We're going to do everything we can to try to protect jobs and to protect education and essential services, but there are no promises here," said Senate President Pro Tem Darrell Steinberg, D- Sacramento.

Schwarzenegger offered two budget revisions because of Tuesday's vote.

Approval of three of the measures — 1C, 1D and 1E — would give Schwarzenegger and legislators $5.9 billion more in general fund revenues for this fiscal year and the fiscal year that begins July 1.

With approval of the three measures, the deficit is estimated at $15.4 billion. Should voters reject them — as predicted — the gap grows to $21.3 billion.

Schwarzenegger's Plan B, predicated on the measures losing, includes $2.3 billion more school cuts and $1.4 billion in extra borrowing.

Department of Finance Director Mike Genest said the Legislature must prioritize school cuts of $1 billion by June 30 to take advantage of savings this year and cut the amount owed next year to education. Genest said the state can cut school and community college funds by $5.4 billion without running afoul of federal stimulus rules.

Schools could recover some money through federal funds. To make up the difference, the governor proposed giving K-12 districts flexibility to slice up to seven days of classes and slashing funds for community colleges.

Education groups plan to ask lawmakers and the Obama administration to scrutinize the proposal.

"I just don't buy it," said Kevin Gordon, an education lobbyist.

Schwarzenegger proposed reducing payments to private hospitals, cutting rates for family planning providers and, if the ballot measures fail, eliminating 225,000 children from health coverage.

The state will have to obtain a federal waiver to cut $750 million in Medi-Cal programs for low-income residents. Schwarzenegger wants more authority to cut eligibility, benefit levels and rates paid to health care providers.

Anthony Wright of Health Access California, which represents low-income residents, said a federal waiver would be devastating.

"That means eliminating coverage for low-income working parents who are under $18,000 for a family of three," Wright said.

Conservatives thrilled

But fiscal conservatives cheered. Jon Fleischman, publisher of the FlashReport blog and a frequent critic of the governor, said: "These proposed, substantial cuts in state spending represent a victory for those who feel that state spending has ballooned to an unsustainable amount," he added.

Neither Schwarzenegger plan includes tax increases. The governor and legislators closed a $40 billion gap in February in part with $12.8 billion in temporary tax hikes.

"To look for new revenues is out of the question," Schwarzenegger said.

Schwarzenegger's budget is not without fee hikes. He proposed collecting an extra $2.8 million from residents of Veterans' Homes. If the ballot measures fail, the governor wants higher fees at state parks and an insurance surcharge of $48 per homeowner.

Assemblywoman Noreen Evans, D-Santa Rosa, chairwoman of the Assembly Budget Committee, said taxes should be an option.

"What he doesn't do is take a look at new revenues, like the oil and gas severance tax," Evans said.

The governor leaves a huge chunk of the deficit to the future — $7.5 billion, or 35 percent of the $21.3 billion plan. Much would come through a loan for up to $6 billion.

If the three ballot measures fail, the governor said borrowing money from cities and counties is unavoidable.

Cities and counties warned they are already eliminating core services — and taking $2 billion from them would threaten parks, libraries and public safety.

The worst-case budget calls for remanding about 8,000 low-level illegal immigrant prisoners to the federal government. The governor abandoned a plan to release 19,000 low-level citizen offenders.

After opposing offshore oil drilling last year, the governor wants an oil company to drill off Santa Barbara to raise $100 million.

Schwarzenegger spokeswoman Lisa Page said the proposal does not violate a state moratorium on offshore oil drilling because the state waters border a drilling platform in federal waters.

The governor proposed selling major state assets, including Cal Expo and San Quentin State Prison, although proceeds would not go toward the current deficit.

Finally, Schwarzenegger made a pitch for the ballot measures, which include creation of a rainy day reserve fund that is designed to squirrel away funds in good years for use in bad ones.

"Many Californians have reached the point where 'the budget' and 'deficit' are four-letter words," he said. "(But) this is what this election is all about. It's about California's future; it's about California's legacy."

Lillian Taiz, a history professor at California State University, Los Angeles, and president of the California Faculty Association, stood outside the Capitol and said the governor was using his budget for political purposes.

"I think all of this is a scare tactic for the coming election," Taiz said.

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