State Takes Hit in Budget

The House on Wednesday approved and sent to the White House a far-reaching bill that will trim the growth of federal benefit programs by more than $39 billion in the next five years -- Congress’ first major budget-cutting exercise in almost a decade.

The measure, which is expected to cost California at least $1.7 billion in federal assistance, squeaked through the Republican-led House by two votes -- 216 to 214 -- and without a single Democrat in favor. The Senate had passed the legislation shortly before Christmas, also with no Democratic support, when Vice President Dick Cheney broke a 50-50 tie.

President Bush issued a statement praising the House vote and added, “I look forward to signing this bill into law.” The 2007 budget he will submit to Congress on Monday, Bush said, “will continue to build on the spending restraint we have achieved.”

Among its many provisions, the bill will charge higher interest rates on student loans, reduce federal aid to force absent parents to pay child support and impose stricter work requirements on welfare recipients.

As the state with the largest population, California will absorb a large share of the cuts. The state’s Legislative Analyst’s Office estimates that California will lose $1.7 billion in federal aid and have to spend $1.4 billion of its own money under the bill’s provisions. The state Finance Department foresees $2.4 billion in lost federal aid.

“This will blow a multibillion-dollar hole in the state budget, making a bad situation worse,” Assembly Speaker Fabian Nunez (D-Los Angeles) said Wednesday after the bill was passed. “It’s another slap in the face from Washington to California’s poor and middle-class families. And worse, it jeopardizes many of the matching funds we were hoping for to fund healthcare and education programs.”

Noting that every California GOP House member -- with the exception of the absent Rep. Gary G. Miller (R-Diamond Bar) -- had voted for the bill, Nunez added: “It’s amazing to me that the Republicans in our congressional delegation continue to put party politics ahead of getting more resources for California.”

Asked about his support for the measure despite the concerns of his home state’s government, Rep. Ed Royce (R-Fullerton) said that tougher fiscal times were ahead if Congress failed to rein in spending.

Rep. Ken Calvert (R-Corona) said in a statement: “Entitlement programs are projected to double in 10 years, and if we fail to properly curb this growth, today’s youth will face an even greater problem down the road. By slowing the rate of growth today, we reduce the chance of being faced with deep program cuts or large tax increases in the future.”

Republican leaders have portrayed the bill as a crucial part of their drive to reduce the federal budget deficit. Rep. Mike Pence (R-Ind.), a leader of House conservatives, called the measure “an important first step toward restoring public confidence in the fiscal integrity of our national government.”

Yet measured against the budget as a whole, the spending cuts seem mild. Heritage Foundation budget expert Brian M. Riedl said the cuts would reduce total growth in federal benefit programs over the next five years from 39% to 38%. And even as the House was passing the spending-cut bill, the Senate was debating a $56-billion tax cut that the House had already passed -- a combination that would add $16 billion to federal deficits.

Democrats condemned budget cuts that focused on programs to benefit the poor even as Republicans planned more tax cuts that disproportionately benefit the wealthy.

“This isn’t about small government,” said House Minority Leader Nancy Pelosi (D-San Francisco). “This is about small-minded, petty government that does not meet the needs of the American people.”

The bill includes provisions besides budget cuts.

It would immediately raise the current $100,000 account limit on federal bank deposit insurance for individual retirement accounts to $250,000. The measure gives the Federal Deposit Insurance Corp. discretion to increase the $100,000 insurance ceiling on regular deposit accounts to reflect inflation, starting five years from now.

And upon Bush’s signature, the legislation will reauthorize and revamp the welfare reform law that Congress enacted in 1996 but that expired in 2002. Since then, Congress has extended the program, Temporary Assistance to Needy Families, with a series of short-term reauthorizations.

States will face reductions in federal welfare grants if they cannot meet strict new requirements for moving their welfare recipients into jobs or activities such as job training. The state Finance Department estimated that California would lose $1.5 billion in federal welfare grants -- and predicted that Gov. Arnold Schwarzenegger and other outraged governors would force Congress to rewrite these provisions.

Late last year, Schwarzenegger, a Republican, wrote to the California congressional delegation to question the new work requirements imposed on states for welfare recipients. He objected to the prospect that the state could lose some of its federal grant if 90% of adults in its two-parent welfare families did not, between them, work or participate in work-related activities for 35 hours a week.

“I support Congress’ goal to reduce the rate of spending growth,” he said, “but I believe policy reforms should be the first priority, and budget savings will naturally follow.”

Schwarzenegger also complained that every dollar of child support enforcement money withheld from the states would cost single parents more than $4 in uncollected child support.

The spending-cut bill, he said, would cost $1.4 billion in child support payments over five years and impose $400 million in welfare costs on the state. In Los Angeles County alone, officials say that they stand to lose $165 million over five years.

The bill’s Medicaid provisions spell bad news for many of the program’s low-income recipients but good news for health insurers and drug companies. The bill could mean that beneficiaries with incomes just above the poverty line will pay more than the current $3 co-payment for many medical services. It will tighten restrictions on elderly persons who transfer assets to family members to qualify for Medicaid.

Senate-passed provisions to force insurance companies and drug manufacturers to absorb some of the cuts were dropped by the House-Senate conference committee that wrote the final bill.

The deepest cuts -- $12.7 billion over five years -- were exacted on the government’s student loan programs. Kevin Bruns, executive director of America’s Student Loan Providers, said the savings would come at the expense of students, parents and lenders alike. “No one got off easy,” he said.

The University of California wrote to the state’s House delegation expressing concern that the legislation would increase the costs to UC system borrowers by more than $10 million over the next three years.

Final approval of the budget-cutting bill came after months of tortuous behind-the-scenes negotiations that laid bare divisions within the Republican ranks.

The budget cuts had caused a split between conservatives who complained about the growth of government and vulnerable moderate members for whom a vote to cut popular social programs posed a political risk.

The House, after much arm-twisting and concessions by its GOP leadership, passed the measure late last year. But minor changes made by the Senate forced it to be sent back to the House for approval. Over the Christmas recess, opponents campaigned in the districts of moderate Republicans in a final effort to kill the bill.

As much as the measure’s passage was welcomed by Bush, it was perhaps sweeter for House Majority Whip Roy Blunt (R-Mo.), whose hopes of succeeding former Majority Leader Tom DeLay (R-Texas) could have been derailed if he had failed to corral the necessary votes. The leadership vote takes place today.

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Times staff writer Evan Halper in Sacramento contributed to this report.