Schwarzenegger proposes austere spending plan as Calif. faces another massive budget deficit

Schwarzenegger proposes budget for ‘tough times’

SACRAMENTO, Calif. — Gov. Arnold Schwarzenegger has warned Californians that they face more economic pain in the year ahead, and on Friday he delivered on that promise by proposing an austere budget that takes the state back to its spending level of six years ago.

To make up for a drastic drop in tax revenue and plug a $20 billion deficit, Schwarzenegger proposed making cuts to health and human services, welfare, prisons, transportation and environmental programs.

He also seeks to raise money by rolling back recent corporate tax breaks, expanding oil drilling off the Santa Barbara coast to provide $140 million for state parks and demanding more money from the federal government.

The Republican governor vowed to protect spending for public schools and colleges after cutting their funding by billions of dollars in recent years, actions that have sparked student protests throughout the state. Unlike last year, Schwarzenegger said he would not agree to any tax increases.

The continued austerity measures are a fallout from the national recession, which has pummeled California’s economy and boosted the state’s unemployment rate to 12.3 percent, third highest in the nation. The resulting fiscal crisis has forced California to shave $60 billion from state government spending over the last two years.

Schwarzenegger said the state is beginning to emerge from the downturn but that it would be three to four years before tax revenue recovers.

“Tough times still lie ahead,” he said.

Schwarzenegger’s budget proposal for the fiscal year that begins in July contains $82.9 billion in spending from the general fund, the state’s main account to pay for its daily operations. The amount is $3.1 billion lower than last year and the lowest amount California has had to spend on government operations since the 2004-05 fiscal year.

It is $20 billion less than the high point of general fund spending three years ago.

“These are the hardest decisions, the hardest decisions a governor must make. Yet there’s simply no conceivable way to avoid more cuts and more pain,” Schwarzenegger said.

Political divisions over the governor’s plan already have emerged, and debate over which programs will get money from a shrinking pie will dominate state government this year. Lawmakers will start the back and forth in the coming weeks in an emergency legislative session called by the governor.

Democrats, the majority party in both houses of the Legislature, want to explore more ways to raise money and protect health and human service programs. Republicans, whose votes are needed to reach the two-thirds majority required to pass a state budget, refuse to raise taxes and want to focus on helping the private sector create jobs.

Schwarzenegger’s plan includes stimulus measures, including a $500 million plan to train 140,000 workers and create 100,000 jobs.

The governor also vowed to continue targeting the state payroll after ordering government workers last year to take three furlough days a month, which cut their pay by 14 percent. His proposal for the coming year would replace them with a straight 5 percent pay cut. He also is asking that state employees contribute 5 percent more to their pension plans.

Departments across state government would be required to reduce their payrolls by 5 percent by mid-July. Taken together, the employee compensation measures would save $1.6 billion, the governor said.

Increased federal help, especially for the costs of Medicaid, imprisoning illegal immigrants and implementing federal education mandates, also plays a key role in Schwarzenegger’s budget proposal.

He noted that California receives about 78 cents for every dollar it sends to Washington, D.C., in federal taxes and says the state deserves more. By comparison, he said Texas receives 94 cents back while Alaska gets $1.84. Schwarzenegger said he will ask for a $6.9 billion increase from Washington.

“The federal government is part of our budget problem,” the governor said.

If the federal government does not provide extra money, the administration would seek to eliminate certain social service programs, including in-home care for frail seniors and the disabled, and the Healthy Families program, which provides health care for millions of children from poor families. CalWORKS, the state’s main welfare program, also could be wiped out.

U.S. Sen. Barbara Boxer, D-Calif., said it was untrue that California receives just 78 cents for every dollar state taxpayers send to Washington. Members of her staff said the figure is outdated and does not reflect extra help the federal government is providing states during the recession.

She said the most recent figure for California is closer to $1.45.

“The governor is free to threaten people. If that’s what he wants to do, that’s what he wants to do,” Boxer said in a conference call with reporters. “What I’m doing is saying that we’re reaching deep. We understand, and we’re continuing to get more funding back to our states.”

Seeking to preserve even more money, Schwarzenegger would delay by one year tax breaks for large corporations that were awarded during recent budget negotiations.

Schwarzenegger’s proposal to protect funding for K-12 schools and colleges comes after he signed a series of education reforms that will help California compete for up to $700 million in federal money.

As part of that, he wants a constitutional amendment that would guarantee more money going to higher education than to state prisons. After allowing huge cuts to higher education throughout his tenure, Schwarzenegger now wants at least 10 percent of annual general fund spending to go the University of California and California State University systems. No more than 7 percent would go to corrections.

The shift would start in the 2011-12 fiscal year, when the amendment, if approved by voters, would require that all prison cuts be diverted to higher education. Starting in 2014, lawmakers could add money from other sources to meet the 10 percent funding requirement for higher education.

Schwarzenegger said much of the prison savings would come through a provision in the constitutional amendment letting the state pay private companies to operate prisons and provide more prison services. His budget proposal envisions $1.2 billion in cuts to the state prison system in the coming fiscal year.

Assembly Speaker Karen Bass, D-Los Angeles, said protecting K-12 schools and colleges from cuts should not come at the expense of social welfare programs that are essential to those who are most vulnerable.

Health and human services already are targeted for nearly $3 billion in cuts in the budget proposal Schwarzenegger released Friday.

“I think that it is a huge conflict and contradiction to say that we care about these kids from 8 (a.m.) to 3 (p.m.), but once they get out of those schools we don’t care whether they have food or whether they have shelter, whether their parents are employed or whether they are on the street,” Bass told reporters after the governor released his budget. “We have to look at the safety net in its entirety.”

Associated Press Writers Tom Verdin, Don Thompson, Juliet Williams and Samantha Young in Sacramento, and Kevin Freking in Washington, D.C., contributed to this report.