California braces for brutal budget cuts

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Gov. Arnold Schwarzenegger and lawmakers scrambled Wednesday to avert a financial meltdown, and public officials across California braced for annihilating cuts on the day after voters trounced their leaders' rescue plan for the state.

Within two hours of returning from Washington, D.C., the governor huddled behind closed doors with Democratic and Republican legislative leaders to grapple with a projected $21.3-billion budget shortfall for the coming fiscal year and stop state government from running out of money by July.

But the Republican governor delivered at least a bit of good news: Obama administration officials had backed off their threat to rescind $6.8 billion in federal stimulus money.

The hacking of government began quickly, by the hand of a little-known state panel that sets elected state officials' pay. Citing a need for shared sacrifice, the group decided to reduce those salaries by 18% starting next year.

Otherwise, on a bright, clear morning in the capital, the most certain thing was the dark and angry mood of the voters. They had overwhelmingly rejected a package of ballot measures intended to produce about $6 billion through the middle of next year with taxes, borrowing and other means; limit future government spending; and bolster the state's rainy day fund.

Only a measure to punish elected officials by denying them pay raises in deficit years won approval -- easily.

Schwarzenegger, who alienated himself from fellow Republicans in February by reversing his pledge not to raise taxes, took the results as a mandate for the plan he unveiled last week to slash billions from education, healthcare, law enforcement and social programs, and to borrow $2 billion from local governments.

"The people told Sacramento, 'Go and do your work yourself. Don't come to us with your problems,' " Schwarzenegger told reporters in Washington before flying home. "So now we have to recognize that and move forward and make all of the changes through cuts."

There was a sense that the warnings this time, unlike some earlier ones, were real -- that state officials had no options left but to deliver devastating cuts that could force Californians to reconcile the desire for programs they have routinely approved by initiative with an insistence on limiting taxes.

"People are going to have to figure out: Do they want schools, do they want roads, do they want public safety, do they want to take care of the less fortunate?" said John Burton, a former state Senate leader who is now chairman of the California Democratic Party. "At some point, that's going to happen."

The protests were already underway.

In Los Angeles, Mayor Antonio Villaraigosa said the governor's plan to "balance its books on the backs" of local government could force the city to cut services and seek loans of $68 million to $120 million from the private sector.

"I for one will not sit idly by while this process runs its course," the mayor said.

Los Angeles County risks losing more than $300 million from recent and proposed state actions, which could affect county welfare, drug prevention and other programs. "A lot of people are going to get hurt," Supervisor Zev Yaroslavsky said.

The urgency of the state's troubles seemed sure to galvanize advocates of far-reaching solutions.

They include a Bay Area group seeking to hold a constitutional convention, a committee exploring revision of the state's volatile tax structure and proponents of allowing lawmakers to pass budgets and tax increases with a simple majority vote instead of the stalemate-inducing two-thirds threshold now required.

In Washington, the governor lobbied for other solutions. He learned in a meeting with U.S. Health and Human Services Secretary Kathleen Sebelius that the Obama administration would not withhold the stimulus money from California over the state's decision to save $74 million by cutting the pay of unionized home healthcare workers.

The federal government initially appeared to take the side of the Service Employees International Union, which represents the healthcare workers and objected that the wage cut ran afoul of the stimulus law.

Schwarzenegger is also seeking a federal waiver so the state can cut $750 million from Medi-Cal healthcare programs for the poor without violating the terms of the stimulus package. And the state is discussing an unprecedented U.S. government guarantee for at least $15 billion in borrowing.

But in Sacramento, the focus was squarely on reducing the size of government. Although Democratic legislative leaders did not rule out new taxes or fees, they said they would not hesitate to make deep cuts that could antagonize their allies.

Assembly Speaker Karen Bass (D-Los Angeles) has banned any legislation with a price tag attached. Senate and Assembly lawmakers will hold regular sessions starting today to hash out budget plans.

The last round of discussions lasted for months amid partisan gridlock, which resulted in halted construction projects and delayed tax refunds. Senate President Pro Tem Darrell Steinberg (D-Sacramento) predicted a smoother outcome this time.

"The world is not coming to an end here," he said.

Still, the negotiations resumed exactly three months after the governor and lawmakers announced a budget deal they said would keep the state solvent until the middle of next year. That erroneous prediction, like others before it, helped stoke the fury of Californians who feel they are watching the same movie over and over again, analysts say.

Republican lawmakers also spoke of moving quickly but said they had drawn from the voters' ire a longer-term mission to fashion a drastically more limited and less costly state government. They said they would propose capping the number of days lawmakers spend in Sacramento, reducing pensions for state workers and shifting traditional state jobs to the private sector.

"The people have clearly spoken, that they want to see the way Sacramento does business change," said Senate GOP leader Dennis Hollingsworth (R-Murrieta).

The Citizens Compensation Commission wasted no time getting started with its vote to cut the salaries of the governor, legislators and other state officials elected next year. In the meantime, salaries for those positions will be frozen.

"They should share in the sacrifices that everyone else has had to encounter," said Commissioner Kathy Sands -- a former mayor of Auburn, near Sacramento -- after the panel's 5-1 vote Tuesday at a meeting in Burbank.

Schwarzenegger does not accept his salary of $212,000, but whoever is elected governor next year will receive only $173,840 -- meaning California's top position will no longer be the highest paid in the nation. New York's governor gets $179,000 a year.

State lawmakers will remain the best-paid in the nation even with the scheduled wage cut from $116,208 to $95,291. They also retain paid living expenses of $35,000 a year.

patrick.mcgreevy

@latimes.com

michael.rothfeld@latimes.com

Times staff writers Eric Bailey, Peter Nicholas, Ann M. Simmons and Phil Willon contributed to this report.

Copyright © 2014, Los Angeles Times
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