Schwarzenegger Unveils Stark Budget Plan; Democrats Balk

Saying a budget should be a “reflection of what we in California value,” Gov. Arnold Schwarzenegger presented his final spending plan for the state, proposing to abolish the state’s welfare system which offers assistance to 1.4 million persons, two-thirds of them children.

Increasing the odds of a drawn-out budget battle, Democrats — who hold comfortable majorities in both houses of the Legislature — flatly refused to support any budget containing such a proposal and chided the governor for abandoning an earlier plan to delay implementation of more than $2 billion in business tax breaks.

The GOP governor’s revised budget, updated with actual revenue collections and spending rather than the estimates used in his January budget plan, seeks to close a projected $19.1 billion budget gap with $12.4 billion in cuts, including the welfare elimination that saves the state $1.1 billion but costs the state nearly $4 billion in matching federal funds.

Schwarzenegger said he was forced to make the drastic reductions because the state’s dire fiscal condition and “broken” budget system requires it.

“We have seen the perfect storm. We were hit by everything,” the GOP governor said. “We are left with nothing but tough choices but I want you to know I will not sign a budget until we fix our broken systems.”

Democrats countered that if anything was broken, it was the governor’s promises and value system.

“To tell 500,000 families that they shall be homeless in lieu of delaying corporate tax breaks is just sort of an anomaly that’s just really hard to even understand,” said Sen. Denise Ducheny, a San Diego Democrat and chair of the upper house’s budget committee.  “Our challenge in the next few weeks is to actually rewrite a budget that makes sense.”

Republicans praised the governor for not proposing to increase taxes.

“The governor’s (May Revision) is bitter medicine in many ways. By wisely not raising taxes, the governor is siding with the people by refusing to punish California’s working families,” said Senate GOP Leader Dennis Hollingsworth of Murrieta. “The spending reductions are unfortunate but necessary to begin restoring our budget’s fiscal health.”

In the budget signed in February 2009, nearly $19 billion over two years in temporary taxes were approved.

Public schools, the largest recipient of state general fund money, also take the largest proposed reduction in the governor’s budget — $3 billion in the fiscal year beginning July 1.

The GOP governor has already signed legislation committing the state to repay $11.2 billion in funds schools were shorted over the last three years. He proposes postponing repayment until the fiscal year starting July 1, 2011 — six months after he leaves office.

Among the actions reducing the minimum amount owed schools is elimination of state funding for childcare, a savings of $1.2 billion.

Democrats say the end of state-paid childcare could cost California 200,000 jobs and shutter thousands of small businesses, such as childcare centers. Like the proposed dismantling of the state’s welfare program, Democrats are unlikely to embrace that proposal which would lessen some of the cut to schools.

Schwarzenegger’s January budget balanced on receipt of $6.9 billion in additional money from the federal government. In his revised budget plan, the GOP governor claims $4 billion in additional federal funds will materialize although, to date, the state has received less than $1 billion.

In his January budget, Schwarzenegger listed several new tax credits he would postpone implementation of if federal funds did not reach the level he sought.

He also proposed to continue reductions in existing tax deductions enacted in previous budget such as lowering the credit for dependants from $319 to $102 and forbidding businesses from reducing current income by applying past net operating losses.

Combined, the postponements and continuations save the state $2.4 billion but the GOP governor did not include them in his revised budget, sparking the Democratic outcry over eliminating welfare while handing tax breaks to large corporations.

The GOP governor knows Democrats won’t embrace eliminating welfare and might be holding the tax breaks in reserve as a negotiating tool with Democrats.

“I cant conceive we’re going to completely eliminate the CalWorks (welfare) program,”said Sen. Roy Ashburn, a Bakersfield Republican who was one of the program’s chief architects in 1996. “I think the governor is being provocative to lay it out but I don’t think anyone expects for the entire progam to be eliminated. I’d like to see this be an opportunity to refom the program so more people trapped in dependency can find their way.”

Elsewhere in the spending plan, Schwarzenegger proposes to:

— Take back from counties $602 million in state funds for local mental health program costs, leaving counties to carry out         the program with 40 percent of their existing funding.

— Find $750 million in savings in the In-Home Supportive Services program, which provides care for the elderly. The GOP        governor proposed eliminating the program in January, if federal funds didn’t reach $6.9 billion. A $750 million cut is              approximately 40 percent of the program’s budget.

— Shift incarceration of non-violent, non-sex offender, non-serious prison inmates with three year or less left in their sentence    to county jails. The state would pay $11,500 to counties per inmate.

Finally, the GOP governor used the May Revision to drum up support for the $11.4 billion water bond on the November ballot.

Schwarzenegger proposes to spend $1.1 billion in funds from the bond, which must be approved by voters first.

He lists a wide range of projects the money would be used for: “local and regional drought relief projects, groundwater and conveyance projects, desalination grants, urban and agricultural water management planning grants, Red Bluff Diversion Dam and Delta sustainability projects.”

The wide-ranging list appeals to a wide-ranging segment of water users, all of whom are potential campaign donors.

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