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Schwarzenegger: Reform is the answer to California's budget problems

Gov. Schwarzenegger told Northern San Joaquin Valley public officials Tuesday morning that reform, not drastic cuts or higher taxes, is the solution to California's ongoing budget woes.

A rainy-day fund created by additional revenue in years when California takes in more than expected would bring annual spending and revenue into balance, the governor said.

He spoke at a private meeting at Modesto Centre Plaza with area city council members and officials from Stanislaus, San Joaquin and Merced counties.

"It takes will from the legislators, but it can be done," Schwarzenegger said. "It's simple math."

He also said cuts alone won't solve the $16 billion deficit projected for the 2008-09 state budget, but he ruled out taxes as a solution.

"We have to find revenues this year," he said. "The legislators will have to get very creative."

The Modesto stop was part of an ongoing effort by the governor to persuade cities and counties statewide to back his reform effort as a way to fix the state's budget problems.

But the governor also touched on a number of other items at the plaza meeting and in a later discussion with The Bee's editorial board.

Schwarzenegger told both groups that he's optimistic that the current downturn in housing will abate in a year. He was less rosy on the prospects for all distressed homeowners finding their way out of foreclosure.

"It hits a lot of people who took a tremendous risk and knew it," Schwarzenegger said, describing the subprime loans that are now failing quickly, particularly in the valley. "Borrowers and lenders made mistakes."

Speaking at The Bee, he stressed the need for reform on state water policy and in how California draws legislative district lines.

He expressed support for a medical school at the University of California at Merced, and for fellow Republican and state Sen. Jeff Denham of Atwater to beat a recall attempt against him in June.

"To recall anyone because of the budget last year is ludicrous," Schwarzenegger said of the given reason for the recall effort on Denham. He added that he thinks Denham would survive. "Adversity breeds character."

Before Schwarzenegger's arrival at the plaza, city and county officials said they were concerned that closing that budget deficit would mean taking money from local governments.

"The hard part is that our budget is already in trouble, but it's not as bad as the state's," said Ripon City Councilman Dean Uecker.

He explained that local property taxes -- hurting from the housing meltdown, and local sales taxes, hurting from a slowdown in discretionary spending -- are impacting local government budgets.

Ongoing problems foreseen

Stanislaus County Assistant Executive Officer Monica Nino said she worries that state cuts will affect a broad range of county departments, including mental health and criminal justice; and Medi-Cal reimbursements and health clinics.

She added that a budget problem appears likely to continue. "We don't see this as a one-year exposure," she said.

In his 15-minute speech to city and county officials, Schwarz-enegger did not delve into specifics for the budget.

He is scheduled to present his "May revise" budget next month.

That usually serves as the starting point for serious budget negotiations and creation of a budget, which is supposed to be in place by the start of the new fiscal year July 1.

Some questioned why the Tuesday event at the plaza, which was announced late Monday, didn't include school officials.

Virginia Madueño, a Riverbank city councilwoman, said she saw only city and county officials on the e-mail invitation.

"I really think this conversation needs to include schools," she said.

She explained that education cuts indirectly affect cities because students affected by those cuts grow up to be residents.

Since the governor released his budget proposal in January, area school districts have been scrambling to cut budgets and send layoff notices to employees. Stanislaus County schools would stand to lose $84 million, or $750 per student, in funding next year.

County Superintendent of Schools Tom Changnon said he was not given advance notice of the governor's visit.

"I was a little surprised that ... we weren't invited, since his proposed budget right now has had such a huge impact on all of us in education."

Modesto City Schools board President Belinda Rolicheck said she was not invited to participate in the budget discussion. In February, the school district made nearly $12 million in budget cuts in response to Schwarzenegger's proposal.

"I think it's unfortunate we weren't included," Rolicheck said. "By not having education people, I have to wonder if (the governor) is just tired of the discussion ... . I know he's probably taken a lot of heat."

A spokesman for the governor said the omission was not deliberate, noting that meetings elsewhere have included school representatives.

Publicity stunt charged

One school official was in attendance: Michael Brennan, superintendent of the Valley Home School District and an Oakdale city councilman.

Brennan said small districts like Valley Home are hurt worse by budget cuts because their district budgets aren't as big. But he also said that unfunded state mandates for such areas as special education worried him more than the budget.

He was less concerned about the lack of school representation at the meeting, noting that many lobbyists at the state level work on behalf of educators.

"They talk to him every day," Brennan said. "This is a public- ity deal."

Schwarzenegger did seem to enjoy getting about 40 public officials to meet on short notice and joked that Modesto Mayor Jim Ridenour sported a "Terminator" haircut.

He also shared an anecdote of meeting Monday with a French ambassador, who said his country's goal was to reduce spending to a level of two years ago.

"I told him, 'If you figure it out, let me know,' " he said to laughter. "Everyone always has the same problem: They spend more than they take in."

Schwarzenegger showed both groups graphs showing the disparity between state spending and revenue, and pointed out that it could grow as high as $10 billion in a few years.

The problem isn't new, Schwarzenegger said. Chronic budget issues have affected California for 50 years and were part of the reason he was elected in a 2003 recall election.

But the budget situation this year, he said, is a good chance to force a change.

Schwarzenegger, whose term expires in 2010, told The Bee's editorial board that he was undecided about post-gubernatorial plans, whether it would be political, diplomatic, executive or something else.

"If I do a good job, I know the opportunities will be endless," he said.

Bee staff writer Merrill Balassone contributed to this report.

Bee staff writer Ben van der Meer can be reached at bvandermeer@modbee.com or 578-2331.

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