Budget Cuts Deep, Spares Few : Finances: The $57.4-billion spending measure signed by Wilson marks the first year-to-year decline in the general fund in 50 years. Governor says cuts are no guarantee that state has put its fiscal problems behind it.

Gov. Pete Wilson signed a recession-squeezed $57.4-billion state budget on Wednesday that will cut deeply into health and welfare services for the poor, higher education and local governments while largely sparing the public schools and the state prison system.

Wilson’s signature ended a historic stalemate that polarized the Legislature and forced California to pay some of its bills with IOUs for the first time since the Great Depression. The state made no payments at all during the 63-day impasse to thousands of vendors who supplied goods and services to the government.

The budget calls for general-fund expenditures of $40.8 billion, a 5.2% reduction from last year’s spending and the first year-to-year decline in the general fund in more than 50 years. It includes no broad-based tax increases.

“It’s a difficult budget in that it reflects the very trying times we are experiencing,” said Wilson, who used his line-item veto to slice $450 million from the budget passed by the Legislature. “It’s compelled austerity that we did not seek.”

Orange County officials reacted with anger and invective as they prepared to cope with large reductions in revenue to cities and counties.

La Habra City Manager Lee Risner called the budget the product of “a hysterical, hypocritical, despicable legislative body. Honest to God, we may not discover some of the fine print that could cost us millions for six months.”

Added Mission Viejo City Manager Fred Sorsabal: “It’s only 10 more months until we do this again. Don’t get panicked, folks, because if you think this is bad, wait until next year.”

The governor conceded that his long standoff with the Legislature, which he said was intended to bring an end to the state’s recurring budget shortfalls, does not guarantee that California’s government has put its fiscal problems behind it.

The general fund’s razor-thin reserve of $28 million all but assures that this fiscal year will end with a deficit unless the economy performs far better than expected. And continued economic sluggishness, Wilson said, could mean another budget crisis next year.

“We are not guaranteed that we will not face a similarly difficult situation,” Wilson said. “I don’t think it will be as difficult as this.”

The stalemate was triggered by a $10.7-billion gap between anticipated revenues and the cost of paying off the deficit from last year’s budget, rebuilding a reserve for emergencies and providing all services at their current levels.

With tax increases off the negotiating table because of the recession and the election-year fears of lawmakers, the budget could be balanced only by cutting expenditures. Democrats agreed early on to do that but fought Wilson over the depth and location of the spending reductions.

Assembly Speaker Willie Brown--Wilson’s chief antagonist in the Legislature--predicted Wednesday that Californians will be more upset over the effects of the budget than they were at the Legislature’s inability to produce a spending plan on time.

“They’re going to be screaming for somebody to relieve the pain,” Brown said in an interview. “They’re not going to remember how long it took to get there. This budget reflects the tenor of the times, and the pain and agony that people are going to experience as a result of it is the same pain and agony suffered by those of us who did it.”

The spending plan includes reductions in almost every area of government. Although Wilson in his negotiations with the Legislature fought off many proposed cuts in the bureaucracy, the spending plan he signed included 15% cuts in state administration. Wilson applied that same standard to his own office and those of the state treasurer and controller, whose budgets he reduced with his line-item veto.

The only major agency that will get more money this year than last is the prison system, which is slated to receive a $4-million increase in a $3-billion budget. But the prisons will still have to squeeze to accommodate 3,800 additional inmates, about a 3% increase, with virtually the same amount of money.

The most contentious issue faced by lawmakers--education funding--was resolved with a compromise that will allow schools to spend the same amount per student this year as they did in the last fiscal year. But they will do so only by borrowing against future appropriations guaranteed by Proposition 98, the voter-approved amendment in the constitution meant to protect school funding.

The result, school officials say, is that even as they maintain level per-pupil spending, education will suffer because the cost of running the schools increases every year as salaries climb and inflation erodes the value of a dollar.

Community college students, meanwhile, face a steep increase in their fees, from $6 per unit to $10. The legislation also removed an annual cap on student fees, so the cost for a full-time student taking 15 units will climb from $180 a year to $300.

California’s universities, which long have been described as a model for the nation, will absorb major reductions. State support for the University of California and the California State University system will drop by $360 million, or 9%.

Part of that shortfall will be made up by fee increases. Cal State students face a 40% increase, costing them each $372 more per year. UC fees will climb by $550 annually, a 24% increase.

Spending on health and welfare programs for the poor will drop by $967 million, or 7% below last year’s level.

Among the reductions:

* Recipients of grants in the Aid to Families With Dependent Children program will lose an average of 5.8%. A mother and two children living in Orange County will see a drop in their basic monthly cash grant from $663 to $633. The reduction will be greater for families living in rural areas of the state with lower housing costs.

The budget also limits the grants for families who have recently moved to California, giving them no more in their first 12 months here than they would have received in the state from which they moved.

* Aid to the aged, blind and disabled also will drop by 5.8%. Monthly grants to single aged and disabled individuals in Los Angeles will fall from $645 to $610. The grant will fall to $597 for people living in rural areas.

* A program that provides assistance to the home-bound elderly and disabled will be cut by 12% across the board, although special provisions will be made for people who would be most at risk of being forced into institutions if they lost their aid.

The budget also includes cuts in programs for the developmentally disabled, reduces Medi-Cal reimbursement to some physicians who care for the poor, and limits even further the services available to illegal immigrants, who until now qualified only for emergency and follow-up care.

“We had an $11-billion hole to fill and we were compelled to do things that no one wanted to do,” Wilson said.

The state’s service cuts would have been far deeper if not for the bipartisan agreement to shift $1.3 billion in property tax revenue from local governments to the schools, allowing the state to reduce its support for education by the same amount.

The transfer was a partial reversal of the state’s bailout for local government after the passage of Proposition 13, which reduced property tax revenues for cities, counties and special districts that provide fire, water, sewer and other services.

The bailout came at a time when local governments were hurting and the state had a huge surplus. Now, lawmakers reasoned, the state was in need and had to step back from its earlier commitment.

Although Capitol lobbyists for each level of government ultimately signed off on the deal, local government officials throughout the state said Wednesday that the property tax shift, combined with other cuts, will force painful reductions in the services they provide their constituents.

In Orange County, government officials were searching for the bottom line after their briefings from the state. For many, the answers may likely include fee and tax increases in exchange for fewer services.

“I think you will probably see reduced hours in City Hall,” San Clemente Assistant City Manager Paul Gudgeirsson said. “You may see where we close the doors to City Hall for a week or furlough employees, put them on paid leave. Thanks to the state we are now unbalanced. That’s what’s distressing.”

“I predict that next year will be absolutely devastating,” Laguna Beach Mayor Robert F. Gentry said.

Contributing to this report were Times staff writers Frederick M. Muir in Los Angeles, Leslie Earnest and Leslie Berkman in Orange County, Tina Daunt in Ventura County and Mark Platte in San Diego.

WELFARE PINCH: O.C. mothers on AFDC wonder where they can cut back. B1

RELATED STORIES, GRAPHICS. A26-27, A30, B1, D1