State’s budget shortfall widens

SACRAMENTO -- Gov. Arnold Schwarzenegger told social service advocates Tuesday that the state’s anticipated budget shortfall -- already feared to be the worst since he took office -- has widened to $14 billion, according to people at the meetings.

That new figure indicates that the state’s fiscal fortunes are declining even more rapidly than many leaders had expected. Less than a month ago, the Legislature’s chief budget analyst calculated that California is on track to come up $10 billion short by June 2009, when the state ends its next fiscal year.

A $14-billion budget gap would translate to more than 12% of the state’s budget if spending continues to rise as projected. Legislative Analyst Elizabeth Hill last month urged legislators to consider getting rid of state programs created in recent years, abolishing tax breaks, raising taxes and reducing benefits for the recipients of government programs.

In his meeting with social service advocates, the governor said he wanted to try to reduce spending evenly across the state’s programs, which include running prisons, providing healthcare for the poor and disabled, and paying for public schools. Last month, Schwarzenegger ordered state agencies to trim 10% of their spending immediately.

“It was more of a ‘we want a fair and across-the-board approach’ rather than picking on a particular sector,” said one participant in the meeting, who like the others, spoke only on condition of anonymity because the governor’s office wanted the discussion to remain confidential.

H.D. Palmer, a spokesman for the state Department of Finance, declined to confirm the accounts.

“We’re not going to discuss the specific number until the governor has completed briefing the legislative leadership on what we project the scope of the problem will be,” Palmer said.

Schwarzenegger is scheduled to submit his budget plan to the Legislature on Jan. 10.

Palmer attributed the acceleration of the state’s troubles to a housing market slump that has depressed property tax revenues and delays in expanding Indian gambling that lawmakers had approved in hopes of increasing money to the state.

The new fiscal troubles come as Schwarzenegger and Assembly Speaker Fabian Nunez (D-Los Angeles) are making a feverish effort to reach agreement on a plan to overhaul the state’s healthcare system. That has been the top goal of both leaders and the focus of the Capitol for the entire year, but negotiations have been stymied about how to pay for it and what it entails.

In recent days, however, activity has picked up to the point that Nunez has summoned the Democratic members of the Assembly back to the Capitol on Thursday to discuss the state of negotiations with the hope of presenting them with a deal.

The final details remain unresolved, but the plan’s outlines are said to include a requirement that most businesses spend 6% of their payroll costs on healthcare, and an increase in the state’s tobacco tax. The money would be used to help lower-income and some middle-income families buy private health insurance while requiring everyone else to procure those policies on their own.

Coincidentally, the cost of the healthcare plan has been pegged at $14 billion a year, but proponents say it is not supposed to affect the state’s budget predicament one way or the other.

Even if the leaders reach a deal this week on healthcare, the plan would still face many hurdles, including winning passage in the Legislature and then going before the voters next November.

Tobacco companies, business groups and Blue Cross of California, the state’s largest insurer, are among those preparing to try to defeat it if it makes it that far.

--

jordan.rau@latimes.com