Budget plan displeases both parties

Gov. Arnold Schwarzenegger attempted to forge a path out of the state’s financial mess Wednesday by offering concessions to both Democrats, who are demanding that schools and other services not be cut, and Republicans disdainful of new taxes.

Both sides immediately declared that they wanted little to do with the governor’s budget proposal, suggesting that Sacramento is in for another long, unproductive summer.

The $144.4-billion spending plan would restore $1.8 billion for schools while making deep cuts in welfare and healthcare for the infirm, legal immigrants and impoverished parents.

It would steer an $828-million windfall of gas tax revenue -- the result of soaring prices at the pump -- away from public transportation programs and into patching California’s $15.2-billion budget gap.

The challenge that the governor and lawmakers face is daunting. The state has dropped $6 billion further into the red since January, when California was already struggling financially.

The centerpiece of Schwarzenegger’s budget is a novel plan to ask voters for permission to borrow $15 billion from Wall Street against future earnings of the state lottery, and to temporarily raise the state portion of sales taxes -- now 6.25% -- by 1 percentage point if voters reject the proposal in November.

“As the deficit grew these past few months, I knew that we could not solve this crisis by cuts alone,” the governor said in presenting his proposals. “We had to get creative.”

But state Senate leader Don Perata (D-Oakland) called the revised budget “beneath a governor of this great state. It’s telling our citizens: This is it. Our best years are behind us.”

Assembly Republican Leader Mike Villines of Clovis called the sales tax idea -- a linchpin of the governor’s plan -- “a deal-killer.”

The lottery proposal, which involves updating the lottery with new games and promotions that the state’s financial advisors say would boost ticket sales and generate billions of dollars in new revenue, is pitched by the governor as a painless way to generate cash.

But lawmakers were skeptical. Some Republicans and Democrats called it accounting gimmickry.

Schwarzenegger said he was undeterred by the torrent of negative reaction.

“I always look at what is the end result,” he said at a meeting with The Times editorial board Wednesday, hours after unveiling his plan. “What are we signing is what is important. Not what happens on the way to get the budget.

” . . . We are trying to be in the middle with this budget,” he said, acknowledging the risk of displeasing both sides of the aisle, but “I always find there’s a middle way.”

That middle has long eluded California’s self-described “post-partisan” governor on budget issues. The state’s finances are in no better shape now than they were when Schwarzenegger came to office in 2003, promising to clean house. And there is little hope in Sacramento that much will happen this year to bring long-term balance to the state’s books.

Lawmakers and activists right now are focused on the most immediate threats. Despite the governor’s attempts at moderation, there are many competing interests in Sacramento that stand to lose from his proposal for bridging the shortfall.

The revised budget would:

* Restrict full in-home supportive services for seniors and people with disabilities, and cut the pay of the service workers. Only the most severely impaired would get aides for household tasks, although in-home medical assistance would continue. About 84,000 people --a fifth of all those helped under the program -- would be affected.

* Deny thousands of impoverished parents healthcare coverage that they now have through the state’s Medi-Cal program. Under the change, a single parent with one child who earns more than $8,540 a year would no longer be eligible.

* Eliminate California’s $111-million program of cash assistance for legal immigrants who are old, blind or disabled. The program helps 10,300 people a month.

* Pare the healthcare provided to impoverished people who have been in the country for five years or less. Those newer immigrants would be eligible only for healthcare for emergencies, pregnancies, in nursing homes, and for breast and cervical cancer treatments.

* Eliminate cost-of-living increases for the disabled in the supplemental security income program -- part of the Social Security system -- with the state keeping $109 million that the federal government is providing to California.

* Cut welfare grants under the Cal-Works program by 5% instead of providing a cost-of-living increase, saving $187 million.

Democrats have declared most of the proposals unacceptable.

“The governor’s proposal is devastating to the poor, elderly and our state’s most vulnerable at a time when they need help more than ever,” said state Sen. Leland Yee (D-San Francisco).

Educators were not satisfied with the governor’s plans, either.

The hit to schools has been scaled back significantly from his January plan, but reductions are still proposed. The plan does not provide a cost-of-living increase.

And some programs, including transportation, class-size reduction and counseling, still face a 10% cut.

The state Department of Education estimates that, in real terms, the governor’s proposed budget represents a $193-million increase over last year’s $56.6 billion in funding.

Still, “no one can say the schools are being fully funded,” state Supt. of Public Instruction Jack O’Connell said at a Los Angeles news conference.

The gas taxes that Schwarzenegger wants to keep are intended to improve public transportation.

The state’s transit assistance program would receive the same amount it did last year, $306 million.

Roger Snoble, head of the Los Angeles County Metropolitan Transportation Authority, said his agency was counting on the money to add bus service to accommodate the greater number of people switching from cars to mass transit because of rising gas prices.

“We have such great momentum going, so we should be looking at being able to add services,” he said.

Republicans, meanwhile, were vowing to block the governor’s sales tax plan. Under that plan, the state’s sales tax would automatically rise by 1 percentage point if voters reject the governor’s bid to borrow against future lottery profits.

The sales tax increase could remain in effect for as long as three years unless the state’s financial balance was restored.

Senate Republican leader Dave Cogdill of Modesto said he doubted that a single Republican senator would vote for the sales tax plan.

“We don’t believe that raising taxes is the solution to our budget problem in this state,” he said. “We still have a severe spending addiction.”

Healthcare advocates castigated Schwarzenegger for targeting medical care at the same time he was yielding to groups with more political clout, such as teacher unions, park users and anti-crime activists.

Michael Herald, legislative advocate for the Western Center on Law and Poverty, called the proposed cuts “callous and cynical.”

“The governor has declared war on the poor today,” he said.

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evan.halper@latimes.com

patrick.mcgreevy @latimes.com

Times staff writers Jordan Rau and Michael Rothfeld contributed to this report.

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(BEGIN TEXT OF INFOBOX)

Budget highlights

The governor’s proposal for erasing a $15.2-billion budget shortfall includes:

$5.1 billion -- ($15 billion over three years) to be borrowed against future lottery revenues, subject to voter approval. Voter rejection would trigger a temporary 1-cent-on-the-dollar sales tax increase.

$828 million -- diversion of the gasoline tax windfall from transportation projects to balance the budget.

$627 million -- cuts in welfare, state benefits for the aged and disabled and pay for in-home care workers for the elderly. Elimination of certain aid programs for legal immigrants.

Source: Times staff reports