Schwarzenegger outlines drastic budget cuts

By Michael Rothfeld

May 15, 2009 12 AM PT

SACRAMENTO — Gov. Arnold Schwarzenegger unveiled a pair of financial disaster plans Thursday, proposing to address the state’s budget crisis by slicing up to seven days off the public school year, releasing thousands of inmates from prison and packing others into county jails, cutting off healthcare to more than 200,000 children and drilling for oil off the Santa Barbara coast.

The governor presented lawmakers with two alternative budgets. The first was grim, addressing a $15.4-billion deficit that finance officials say the state will face even if voters approve a set of ballot measures in Tuesday’s special election.

The second, a contingency plan, held more extreme remedies intended to close a $21.3-billion gap if the measures fail. Under that scenario, the state would borrow up to $2 billion from local governments, to be repaid within three years.

If lawmakers were to ratify either of the governor’s plans, almost every constituency in the state would feel substantial pain. Los Angeles County Board of Supervisors Chairman Don Knabe said in an angry statement that residents would suffer from “the state hijacking these local funds, in the form of reduced services and fewer options.”

In either case, Schwarzenegger would borrow $6 billion to pay bills, pare education funding by at least $3 billion, lay off 5,000 of the state’s 235,000 workers, cut funding to hospitals and reduce eligibility for healthcare programs if he could get federal permission.

The state also would delay repairs in the Capitol for a year, sell the Los Angeles Coliseum and Sports Arena, San Quentin State Prison and other facilities, consolidate state agencies, and eliminate some boards and commissions.

Schwarzenegger explained his proposals to put some of the state’s treasured landmarks on the block plainly, saying that the state can’t afford to keep them. He compared the government with average Californians, who, he said, have told him of selling cars, boats and motorcycles to stay afloat during the recession.

“We are going to do everything that we can to make sure that we are going to make ends meet, but it’s going to be tough,” he said. “And I think that state government has to make the same sacrifices as the ordinary folks make out there.”

In the worst case, Schwarzenegger would release up to 19,000 undocumented immigrants from state prisons, turning them over to federal authorities. Up to 23,000 other state prisoners could be sent to county jails.

The governor would take $3 billion from public schools if the ballot propositions pass and $5 billion if they fail -- potentially forcing a seven-day reduction in the school year -- on top of billions the state cut several months ago. California’s public colleges and universities would lose $1 billion if the measures pass and $1.2 billion if they fail.

Administration officials said the education cuts would be cushioned by incoming federal stimulus funds.

But a lobbyist for school districts, Kevin Gordon, questioned whether the U.S. government would allow the state to use federal money to replace its own.

Such cuts would violate “the spirit of what leaders in Washington, D.C., intended,” Gordon said. The federal money, he said, was not meant to enable the state to cut its own spending.

Only three months ago, Schwarzenegger and legislative leaders reached a budget deal that they said would carry the state through the middle of next year.

But a worsening economy and falling tax revenues have thrown that plan way out of balance. Unless the governor and lawmakers rectify the crisis by the end of July, the state might not be able to pay bills, officials say.

Despite the state’s problems, Schwarzenegger said he would propose no new tax increases beyond those he signed in February. But some of his plan would hit Californians in their pocketbooks.

No matter the outcome of the election, individuals and companies that pay estimated taxes would have to submit 10% more in June, giving the government $610 million earlier than now required. Employers would pay $40 million in fees to fund workplace safety programs.

And if the ballot measures fail, the governor would increase fees at state parks and impose a 4.8% property insurance surcharge on residents and businesses.

The governor also included a proposal, which failed earlier this year at the state Lands Commission, to make $1.8 billion over 14 years by allowing oil drilling from an existing platform at Tranquillon Ridge off the Santa Barbara coast.

His aides said he would ask lawmakers to approve that instead. But the plan could face resistance from environmentalists and residents.

“It’s a horrible idea,” said Assemblyman Pedro Nava (D-Santa Barbara). “It would throw the door open for other offshore drilling.”

Schwarzenegger has been accused of playing politics by moving up the announcement of his revised budget, due annually in May, from its scheduled date of May 28.

Polls show California voters ready to reject Propositions 1A through 1E. They include, among other ideas, altering the state lottery, extending recent tax increases and diverting money from voter-approved programs, and account for $6 billion of the deal Schwarzenegger and lawmakers reached in February.

“We view what’s occurring right now as little more than a Hail Mary pass to try to get the voters to buy off on these ballot propositions,” said Jon Coupal of the Howard Jarvis Taxpayers Assn., which is campaigning against the measures.

But Assembly Speaker Karen Bass (D-Los Angeles) said in an interview that if the measures fail, the consequences will be real.

“There are no gimmicks to pull,” she said. “I do hope in these last few days before the election voters will see how serious this is. If they don’t, I believe we will have very angry Californians when we actually move forward with some of these cuts.”

The governor, who has been arguing strongly for a system to limit spending and create a rainy-day fund in Proposition 1A, acknowledged that he wanted voters to know “how this election will affect your child’s school, your roads, the safety of your neighborhoods, the future of your state.”

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Times staff writers Eric Bailey, Patrick McGreevy and Evan Halper contributed to this report.

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Worst-case scenario

The governor has proposed deep cuts to close a projected $21.3-billion budget gap if the measures on Tuesday’s ballot fail, as polls suggest is likely. Some examples:

- Cut $5 billion from spending on public schools

- Eliminate health coverage for 225,000 children by tightening eligibility for the Healthy Families program

- Reduce funding for child welfare services by 10%

- Transfer 19,000 illegal immigrants in state prisons to federal custody

- Change the law so that up to 23,000 low-level offenders could be sent to county jails rather than to state prisons

Source: California governor’s office