Budget Puts Off Tough Choices

Gov. Arnold Schwarzenegger offered a $102-billion revised state budget Thursday that largely spares the state deep spending cuts that many had feared but pushes tough choices off for another year.

The proposal includes no new taxes. By contrast to the budget he presented in January, the revision lightens cuts to health and welfare programs and includes more money for roads.

But the proposal still confronts the Legislature with a number of hard decisions, such as whether to eliminate promised raises to government workers, cut public college funding and transform how the state helps local governments pay for police, fire and other services.

Schwarzenegger described his plan as a “compassionate budget” but said it would also require sacrifices.

“We have to be honest about our budget crisis,” he said. “We have a lot of work to do.... Everyone has to tighten their belts. Everyone has to give some.”

The revision drops the idea of limiting the number of poor children and AIDS patients who could enroll in state healthcare programs. And it proposes to restart transportation projects with money from a deal the governor is negotiating with casino-owning Indian tribes.

Many budget analysts project that a deficit of about $7 billion will appear by next year under the governor’s proposal, and they are skeptical of his claim that a shortfall will be erased altogether by the year after.

The revised budget also relies on assumptions that may be overly optimistic. For example, it calls for the state’s influential prison guards union to give up $300 million in raises due under its contract.

The governor was able to abandon cuts in some areas as a result of the improving economy, which has boosted tax revenues about $1 billion. An additional windfall of $1.2 billion came from an amnesty program that let taxpayers avoid penalties if they paid taxes owed because they used illegal shelters.

But the administration’s own cautious economic projections suggest that California will not be able to grow its way out of the red.

Officials assume that the growth rate in total personal income will rise from 5.4% this year to 5.6% next year, and that job growth will jump from an anemic 0.8% to 2.1%.

State economists said the governor’s predictions appeared reasonable.

Critics suggested that he was using the same budgeting schemes he campaigned against.

“The old way of doing things is what we are doing now, pushing it off into the future,” said Senate President Pro Tem John Burton (D-San Francisco). “The new way would be stepping up to the plate.”

Democrats also criticized the plan as still cutting too deeply into services for the poor and middle class. They say those cuts should be offset with new taxes on the wealthy. Schwarzenegger said that would only add to the state’s problems.

The governor, however, appears headed toward an agreement with lawmakers that would get a budget passed without any new taxes by his June 30 deadline, the day before the start of the next fiscal year. That’s thanks largely to deals he privately reached with local governments, teachers unions and public universities, traditionally allies of the Legislature’s majority Democrats.

The groups have agreed to accept billions of dollars in budget cuts now in return for assurances from the governor that they will not be cut again in the coming years.

Local governments, for example, would accept $1.3 billion in cuts over each of the next two years in return for the governor’s support of a constitutional amendment that would protect their share of state revenues from ever again being reduced.

Cuts ‘Never Easy’

“It’s never easy to take budget cuts,” said Los Angeles City Council President Alex Padilla. “But in the long term, this is a big win for local governments across the state. To achieve a constitutional protection of our revenues is a huge deal.”

Under the agreement, the city of Los Angeles would give up $49 million and the county would lose $103 million for each of the next two years.

Advocates for the poor and disabled say that although they have been largely spared this round, they fear that the deals with other groups mean the burden will fall on them when the state has to settle up next year.

The governor said he planned to unveil on Aug. 2 a proposal to reduce the amount the state spends on Medi-Cal services to the poor by $400 million beginning next year.

“Healthcare is getting the anti-deal,” said Anthony Wright, executive director of the nonprofit consumer group Health Access California. “Instead of having some cuts now but being either restored or augmented in a year or two, healthcare will get some cuts this year, but major and permanent cuts next year as part of this redesign of the Medi-Cal program.”

At the state’s public universities, reaction to the governor’s plan was mixed. The deal that university leaders cut with the administration will provide them with six years of modest funding increases beginning in fiscal 2005-06.

But this year, the University of California and California State University systems would be forced to endure steep reductions and tuition hikes.

In-state undergraduate tuition would rise 14% this year in both systems, and graduate fees would increase as much as 25%. The systems’ governing boards are expected to improve the increases at meetings next week.

The new budget also leaves in place 10% cuts in freshman enrollment this fall for both universities, along with reductions in administration, research and other programs.

“Students will pay the price of this compact agreement, with fee increases and enrollment cuts,” said Matt Kaczmarek, a UCLA student and chairman of the systemwide UC Student Assn.

The spending plan would give students who receive college financial aid from the Cal Grant program more money to cover the increased tuition and fees.

To get road projects back on track, the governor proposes using at least $500 million that tribes would provide in exchange for being allowed to expand their gambling operations. And, in a reversal from his January proposal, the governor is promising to pay back -- in 2007 -- about $1.1 billion in transportation funding he is taking to balance the budget this year.

“This state has neglected infrastructure and transportation issues,” Schwarzenegger said. “We have to pour more money into this.”

Some transportation advocates, however, suggested that the governor’s proposal did not go far enough. They say the state should not be borrowing from gasoline sales tax revenue that is supposed to be used for road projects under Proposition 42.

“This is particularly irksome to the motoring public, which is paying record high gasoline prices to drive on clogged streets and highways,” said Mike Lawson, executive director of Transportation California, which helped pass Proposition 42. “To add insult to injury, we are driving on the worst roads in the country.”

Prison Guards’ Wages

The governor also hopes to achieve $300 million in savings by renegotiating a labor contract between the state and its prison guards.

Under the contract, signed in 2002 by then-Gov. Gray Davis, guards stand to receive a raise of 11.3% this year.

Leaders of the union said they were willing to sit down and negotiate, but they scoffed at the $300-million number.

“My only comment would be, ‘Next,’ ” said Lance Corcoran, executive vice president of the California Correctional Peace Officers Assn. “It’s an enormous number, and I have no idea how they’re calculating it. It seems like they’ve plucked it out of the air.”

The governor is proposing the state save $557.8 million by not giving raises to other state workers who are entitled to them in their contracts.

A proposal to borrow more than $1 billion to pay the state’s contribution to the pension fund for government workers also remains in the budget -- even though the same proposal was struck down in court last year. Such a proposal would appear to violate the constitutional prohibition against more borrowing to balance the budget beyond the $15 billion in deficit bonds that voters approved in March.

In an unusual move once tried by former Gov. Pete Wilson, Schwarzenegger is assuming that the state can collect an estimated $450 million by taking 75% of all punitive damages awarded by the courts in thousands of cases across the state.

Punitive damages are often awarded in addition to compensatory damages, and they are designed to “punish” companies or wrongdoers for acting maliciously. That money, the administration said, “should more appropriately be awarded to the state, where it can be used for public good purposes.”

The administration is hoping to follow the lead of eight other states that have such a system.

Although Schwarzenegger had earlier promised to “blow up the boxes” of the bureaucracy with large-scale efficiency reforms, there wasn’t much evidence of that in Thursday’s proposal. There was also no sign of a much-touted audit of state government that the governor assured would expose billions of dollars of waste.

“We’re still working on that; it’s a long process,” he said.

When pressed by a reporter, who reminded the governor that he promised results in 60 days from when he took office in November, Schwarzenegger joked that he meant “give or take a year.”

There were various places in the budget where the governor proposed tweaking things to generate some cash.

At 11 prisons, for example, he wants to cancel lunch for inmates on weekends and holidays, and instead serve two meals a day -- brunch and dinner.

The move, expected to save about $1.3 million in food costs, would require a change in state regulations, which now require that prisoners be served three meals a day, two of them hot. Donald Specter of the Prison Law Office, a nonprofit firm that often sues over conditions within penitentiaries, called the move “petty and cruel.

“These are young men with big appetites,” Specter said. “It’s a ridiculous way to save money.”

Times staff writers Sharon Bernstein, Sue Fox, Jessica Garrison, Carl Ingram, Cara Mia DiMassa, Rebecca Trounson, Jenifer Warren, Jordan Rau and Peter Y. Hong contributed to this report.

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(BEGIN TEXT OF INFOBOX)

The revised budget at a glance

Gov. Arnold Schwarzenegger unveiled a $102-billion revised budget Thursday for the fiscal year beginning July 1. It calls for increases in fees for college and university students, no pay raise for state workers, reductions in funding for local governments, and health and human service cuts less severe than proposed in January.

Key elements

Economic growth * Assumes slow increase in jobs, slight reduction in unemployment, and modest growth in personal income.

Revenues * Forecasts slight increase in revenues. Assumes an income and corporate tax amnesty.

Higher education * Undergraduate fees at UC and CSU would rise by 14%. * Graduate student fees at UC would rise by 20%. * Graduate student fees at CSU would rise by 20% in teacher preparation programs and 25% in other programs. * Community colleges: Student fees would increase from $18 to $26 per class unit.

Health and human services * Enrollment caps: Drops caps on enrollment in Healthy Families and AIDS drug programs proposed in January. * Restructuring: Calls for restructuring Medi-Cal, the state’s health program for the poor; in-home supportive services; welfare; foster care; and programs for the developmentally disabled.

Local governments * Cities, counties and local districts would give up $1.3 billion in property taxes.

State employee pay raises * Assumes saving of $858 million if lawmakers eliminate pay raises previously negotiated with state employee unions.

Revenue and spending plan

The governor’s budget includes about $76.7 billion in general fund revenue. These charts show the projected sources of that money and how the governor proposes spending it.

Revenue Dollars Percent source (in billions) of total Personal income tax $38.6 50.3% Sales tax 24.6 32.1% Corporation taxes 8.0 10.4% Insurance tax 2.2 2.8% Liquor taxes .3 .4% Estate taxes .1 .2% Tobacco taxes .1 .2% Other 2.8 3.6%

General fund Dollars Percent expenditures (in billions) of total Education K-12 $33.9 43.7% Health and human services 25.2 32.5% Higher education 9.3 11.9% Youth and adult corrections 6.2 8.0% Courts 1.7 2.1% Resources 1.0 1.3% Tax relief 0.7 .9% State and consumer services 0.5 .7% Business, transportation 0.4 .5% and housing Environmental protection 0.1 .1% Other -1.4 -1.7%

Source: Governor’s budget. Graphics reporting by staff writer Jeffrey L. Rabin