Caps and cuts dominate governor's State of State

Hamstrung by a $14 billion budget deficit, Gov. Schwarzenegger asked lawmakers Tuesday for a state spending cap and said he will propose immediate cuts in all state programs during a State of the State address that focused more on restraint than expansive new ideas.

The Republican governor used his 25-minute speech to explain to Californians why he believes the state is facing a rough budget year, blaming formulaic spending rather than economic problems.

On education, Schwarzenegger said rather than spend more money, the state should focus on overhauling 98 school districts that have fallen out of compliance with the federal No Child Left Behind Act. Rather than rely solely on state funds for infrastructure, he suggested the state should invite private companies to invest in public works projects.

Schwarzenegger said fiscal troubles should not undermine a universal health care plan he wants voters to approve in November if it reaches the ballot.

After winning re-election in 2006 by declaring his leadership had helped turn around California's economic fortunes, the Republican governor did not take blame Tuesday for its latest budget woes, instead blaming them on a decades-old system that relies heavily on spending formulas approved by voters.

"The problem is that, while revenues are flat, automatic formulas are increasing spending by 7.3 percent," Schwarzenegger said. "Even a booming economy can't meet that kind of increase. So the system itself is the problem."

Schwarzenegger proposed a spending cap amendment that would force the state to set aside excess money in good financial years, creating a fund that could be tapped in lean times. The proposal would require the Department of Finance to establish a long-term rate of revenue growth as a baseline to determine when the state should save or spend out of the fund.

The governor did not outline his proposed budget cuts but said he will submit a "difficult" budget Thursday that cuts spending "across the board" and does not raise taxes.

"He is selling us on the excellence of mediocrity," said Senate President Pro Tem Don Perata. "Advocating automatic cuts but failing to establish priorities and how to fund them is political expediency at its best and political leadership at its worst."

Schwarzenegger said the state's economy remains strong and that revenues will remain similar to last year, but that formulas require unsustainable spending increases. He criticized California's tax system, which relies heavily on those earning more than $119,000 a year.

"So, our whole revenue system, its ups and downs, is based on whether the rich have a good year," Schwarzenegger said. "That's no basis on which to run a government. We need more stability."

Schwarzenegger suggested he tried to fix the state's budget system in his first term but ran into roadblocks in the Legislature and at the ballot box. He said he tried and failed to persuade the Legislature in 2004 to approve a spending cap proposal.

The governor also reminded voters that they rejected his plan to do the same during the 2005 special election. That plan came under attack from labor unions and the California Teachers Association, which charged that Schwarzenegger sought to undermine the state's spending guarantee for schools.

Legislative Republicans cheered the governor's budget reform proposal, but Assemblyman Chuck DeVore, R-Irvine, noted that Schwarzenegger tried similar reform in 2005.

"And the problem was, after he was defeated with those five initiatives in November 2005, he gave up and joined the other side," DeVore said. "So this problem that we're facing this year is of his own making, with the co-conspirators being the majority Democrats in the Assembly and the Senate."

Schwarzenegger's proposed budget amendment would trigger automatic spending cuts if the Department of Finance determined that the state was facing a deficit. If the deficit was 1 percent or less, state agencies would have to cut costs by 2 percent. If the deficit was more than 1 percent, agencies would have to cut by 5 percent.

The plan would require lawmakers to determine in advance which state programs would be cut first, a technique Schwarz- enegger said is used in Arkansas. If lawmakers do not make sufficient cuts, the governor would be able to waive state laws and regulations to balance the budget.

Local Reaction

Legislators representing the Northern San Joaquin Valley were asked for their reactions to Gov. Schwarzenegger's State of the State speech Tuesday night. Here are their thoughts. Assemblyman Greg Aghazarian, R-Stockton, and Assemblywoman Cathleen Galgiani, D-Stockton, did not respond.

Assemblyman Tom Berryhill, R-Modesto

“It's been said over and over -- we don't have a revenue problem, we have a spending problem. I will not support any increase in taxes which will only penalize California's hardworking families for the misdeeds of Sacramento bureaucrats. The declaration of a fiscal emergency was just the beginning. We must cut and cut responsibly. And we must enact structural reforms which will once and for all get our budget on track and spending under control.”

Sen. Dave Cogdill, R-Modesto

“We need to put an end to gimmickry, an end to budgetary smoke and mirrors, an end to out-of-control spending that is not related to revenue. We need to stop pretending like we only spend money that we actually have. Each and every year, our budget needs to be truly balanced. That means if capital gains taxes are down or the housing and mortgage market has plummeted, then spending must also go down in like kind. We can't pretend to have revenues that we don't have and continue to spend the same amount.”

Sen. Jeff Denham, R-Merced

“It's time to stop the partisan games. The Legislature must work together to make the changes needed to find a balanced approach to fixing California's budget deficit. The budget cannot be manufactured by one party alone or by across-the-board cuts. Our children should not have their education hindered because of bad budgeting decisions, nor should the safety of our neighborhoods be compromised.”