Schwarzenegger's budget proposal cuts to the bone

Gov. Schwarzenegger uses a chart to help explain his proposed state budget during a news conference in Sacramento on Thursday.
Gov. Schwarzenegger uses a chart to help explain his proposed state budget during a news conference in Sacramento on Thursday. AP

SACRAMENTO -- Gov. Schwarzenegger on Thursday proposed a $101 billion spending plan that cuts virtually every function of state government to close a $14.5 billion budget gap.

"We are facing a very tough situation, but with tough times come historic opportunities," the governor said. "I am convinced the Legislature will help turn today's temporary problem into a permanent victory for the people of California by joining me to enact true budget reform." The budget plan asks lawmakers to close state parks -- including Railtown 1897 State Historic Park in Jamestown, and Sutter's Fort and the historic Governor's Mansion in Sacramento -- and to release prisoners, dramatically pare school funding, reduce Medi-Cal health services to the poor and reduce aid to the low-income blind, elderly and disabled.

A 10 percent across-the-board cut Schwarzenegger promised weeks ago would hit almost every department -- even the Legislature and the courts -- and save about $9 billion next year and $217 million for the remainder of this fiscal year.

Schwarzenegger declared a fiscal emergency and called for some of the cuts to take effect before the July 1 start of the next fiscal year. Failure to do so, said Finance Director Mike Genest, would require an additional $1 billion in cuts in the next fiscal year.

The budget anticipates a reduction of about 7,086 state employees during the next 18 months -- 6,054 of them from the prison system.

The Republican governor's plan also would close 48 parks, reduce lifeguard service at some state beaches, and ask lawmakers to suspend schools' constitutional funding guarantee under Proposition 98 for $4 billion in savings for the fiscal year beginning July 1. He's proposing $400 million in cuts to schools in the current fiscal year.

Assembly Speaker Fabian Nuñéz said that resurrecting a spending cap that will harm education, public safety and low- income children is not reflective of California values.

"Let's be clear that any budget that continues the failed approach of cutting and borrowing doesn't get the job done," Nuñéz said.

"We would like to see a more compassionate budget than what the governor proposed," he said. "But I'm not prepared to draw a line in the sand. I think that would be the irresponsible thing to do."

Republican lawmakers were encouraged by the governor's main message for budget reform as a way to grapple with Sacramento's spending problem. Conservative lawmakers said much of school funding never reaches local districts because it gets wasted on administrative overhead.

"About 60 percent of the money that goes to schools in Sacramento gets to the local districts -- 30 to 40 percent is wasted somewhere up here," said Senate Republican leader Dick Ackerman of Irvine.

Budget reform urged

Schwarzenegger also challenged the Legislature once again to reform the state's budgeting system. He proposed a constitutional amendment that would establish a rainy day fund and set up automatic spending cuts when the general fund fell below projections. The governor would reduce spending by 2 percent if a shortfall were less than 1 percent, and by 5 percent if it were greater than 1 percent.

Such a move, he said, would help reduce such dramatic shortfalls in the future.

"The economy is not the villain here. The economy contributed a little bit to the problem, but the problem is the system itself," the governor said. "On the spending side, the increases are automatic. Formulas in (student) population in K-12 drive that cost up without us doing absolutely anything."

Finance officials say the state's fiscal health soured when California's housing market began to weaken, slowing down the economy.

Though the governor and Legislature passed what appeared to be a balanced budget last summer, tax receipts have weakened so much that the state's projected deficit for the upcoming fiscal year ballooned from $6 billion to $14.5 billion.

"There's bad news in the economy from time to time," said Genest, the finance director. "Lately, it seems to be getting worse." Adding to the problem is what Schwarzenegger described as "Sacramento's culture of spending." Even though personal income growth is growing at a healthy annual clip of about 5 percent, state programs will rise by 7.3 percent.

Fiscal emergency declared

California spends as much as $600 million more each month than the state takes in. In declaring a fiscal emergency, Schwarz- enegger proposed that the Legislature address the current year shortfall of $3.3 billion by eliminating cost-of-living increases in social service programs and lowering school funding by $400 million.

The plan is certain to draw fire from the full range of advocates at the Capitol, particularly powerful education groups and teacher unions.

Schwarzenegger also is asking for $1 billion in Medi-Cal spending cuts by reducing providers' rates, eliminating adult dental services and tightening eligibility requirements.

The plan also would borrow to help the state out of the hole by selling the remaining $3.3 billion in Economic Recovery Bonds authorized by voters in 2004. In addition, Schwarzenegger plans to defer the early debt payment on the bonds scheduled for 2008-09 for another $1.5 billion in savings.

Still, Schwarzenegger asked the Legislature to place $28.3 billion in bonds on the November ballot to join a $10 billion measure for high-speed rail: $6.4 billion for schools, $7.7 billion for higher education facilities, $11.9 billion for water facilities and $2 billion for court construction.

But taxes aren't part of the mix.

"We cannot tax our way out of this problem," the governor said. "I do not believe in tax increases. I think the people of California are sending to Sacramento plenty of dollars, 130-some billions of dollars they are sending every year for us to function. If we cannot function with that money, then there is something wrong with the system rather than with the people."

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