Schwarzenegger’s Budget Would Trigger Billions in New Spending

Gov. Arnold Schwarzenegger, a crusader for fiscal restraint since he was elected two years ago, will unveil a budget today that would trigger billions of dollars in new spending well into the future.

The governor plans to increase funding for education, healthcare and transportation programs. Much of it is spending that the state would continue to be responsible for in future years.

Schwarzenegger’s spending plan comes at the same time he is proposing -- independent of his budget -- to bring before voters $68 billion in new borrowing to improve the state’s roads, bridges, ports and levees over the next 10 years. Californians would need to begin paying for that by the end of next year.

It all comes as California’s $115.7-billion budget remains chronically imbalanced and as the state is expected to lose billions of dollars in federal aid over the next several years. Even without the governor’s new programs, the state was projected to spend more than it takes in through 2010.

Though administration officials say they are paying for all of these election year initiatives with an unanticipated tax windfall that has come to the state in recent months -- with more revenue likely to arrive in the future -- analysts question whether California can really afford it.

“All of this spending is contingent on the economic expansion continuing, and these things just don’t go on forever,” said Ted Gibson, a former chief economist for the state. “These expansions are cyclical. And they never seem to last longer than an ice cube on a hot sidewalk.”

Jean Ross, executive director of the California Budget Project, a nonprofit that researches how budget proposals affect low-income Californians, also questions whether the state would be able to pay for everything the administration is proposing. “I think they are already on target to spend more than the new money will cover,” she said.

Administration officials say the governor remains committed to reducing the state’s chronic budget imbalance. In fact, they say the budget he releases today would pay down debts that aren’t due for several years. Lawmakers who have been briefed on the plan say that includes the early payback of $900 million in transportation funds the state effectively borrowed from itself in recent years to close budget shortfalls.

“The governor has one eye on what our future problems are,” said H.D. Palmer, a Department of Finance spokesman. “You can expect to see steps taken to address them.”

But Palmer said the state can afford the new spending. “We continue to benefit from a growing economy that is producing revenues above what was projected as recently as six months ago,” he said.

Debate over the long-term effect of Schwarzenegger’s budget plan began emerging as some of the governor’s critics questioned how much Californians will even receive for the spending. State Treasurer Phil Angelides, a Democratic candidate for governor, released a report Monday suggesting that Schwarzenegger’s $68-billion public works bond plan would do little more than claim credit for projects already in the funding pipeline.

Angelides said that the governor’s rate of borrowing for public works projects over the next decade is actually lower than what the state has been spending since 2000. The treasurer suggested that Schwarzenegger’s plan is full of “hype” and “gimmicks.” But he added that if the governor continues to block any new tax increase, even that limited level of public works spending would have a far bigger effect on the budget than the governor has acknowledged.

Palmer called Angelides’ critique “silly.” He said the point of the bond plan is to use the $68 billion as seed money to plan for the future in a coordinated way -- as well as attract tens of billions more in matching federal funds, local money and private investments.

“We are taking a long-term, comprehensive look at what the state’s needs are and addressing them,” Palmer said. “The treasurer is taking what is a virtue and turning it into a problem.”

But some of the governor’s Republican allies wonder how the state would pay it all back.

Assemblyman Chuck DeVore (R-Irvine), a vocal opponent of new taxes, has expressed concern that the debt service cost would put so much pressure on future budgets that it could force a tax increase.

“We might be maxing out our credit card,” he said. “There is a fundamental question of how we are going to pay for this.”

The governor’s plan leaves future generations a bill that includes more than just the public works bonds. His proposal, announced last week, to give schools $1.7 billion this year beyond what the law requires would also have a lasting effect on California. It would raise the amount the state is committed to spend on schools in perpetuity, the result of constitutional spending formulas. The governor’s plan would also cancel a scheduled fee hike at public colleges and universities, and increase healthcare spending -- an area where the governor had vowed to rein in costs -- by $1.2 billion.

Brad Williams, director of fiscal forecasting in the state’s nonpartisan Legislative Analyst’s Office, said that is the kind of ongoing spending -- with no new revenue to pay for it -- that can lead to budget problems when the economy falters.

“We are concerned about what these proposals will do to the state’s [deficit] problem,” he said.

“We had been making progress in bringing the budget into balance. Big spending increases and ongoing commitments would reverse some of that.”

On Monday, the governor was in Southern California, focusing on the programs that will be in his budget plan.

He announced a $72.2-million proposal to enroll more low-income children in California’s Medi-Cal and Healthy Families medical insurance programs.

Speaking at times over the din of crying babies at the Northeast Valley Health Corp.’s Women, Infants and Children Center in North Hollywood, Schwarzenegger pointed out that 400,000 eligible children -- more than half of the state’s uninsured minors -- are not enrolled.

“I feel very strongly we should provide the most basic things to families,” Schwarzenegger said.

Much of the $72.2 million would go to a publicity campaign to make low-income Californians aware of the program.

The money would also be used to simplify the application process.

The budget the governor releases today also includes new spending for long-awaited reforms inside the state’s beleaguered juvenile prisons, which house about 3,200 of California’s most serious offenders between the ages of 14 and 25.

As part of a lawsuit settlement he signed more than a year ago, Schwarzenegger pledged to improve medical treatment, education and mental health care for wards -- as young inmates are called -- and to make the prisons rehabilitative places where youths can learn skills so that they stay out of trouble upon their release.

Since then, however, critics have complained that the governor has failed to commit any money to that vision, and that conditions inside many prisons have not improved.

Today’s plan represents the administration’s response, detailing funding for phase one of a four-year program to increase staff and dramatically change the way youths are managed. In the next fiscal year, the governor wants to spend $47 million to add 384 staff positions, including psychologists, counselors and a new category of “case managers” who would monitor each ward’s progress through an individualized treatment program.

Schwarzenegger also proposes $7.5 million for improvements in medical care and nearly $5.5 million to pay for the possible transfer of the state’s 150 female wards from a facility in Ventura into privately run, secure residential programs.

Times staff writers Juliet Chung and Amanda Covarrubias contributed from Los Angeles. Jenifer Warren contributed from Sacramento.