Analyst Gives Gov.’s Budget Mixed Review

Gov. Arnold Schwarzenegger’s revised budget runs school spending up too high, goes overboard to prepare for a flu epidemic and would direct taxes from soaring gas prices away from transportation, the Legislature’s budget analyst said Monday.

Nonpartisan Legislative Analyst Elizabeth G. Hill applauded the governor for devoting a large chunk of the billions of this year’s unanticipated revenue to reducing the state’s debt, but said lawmakers should go further.

“We still have an operating shortfall. We are spending more than we are taking in,” said Hill, whom lawmakers look to for advice on budget matters.

She took aim at a plan by the governor to pay back billions of dollars the state borrowed from schools in leaner budget times. It calls for the state, over the next several years, to boost school spending by $5 billion above what Schwarzenegger proposed in his January budget.

Hill said the governor’s proposal for spending that money “has several shortcomings,” including the creation of programs the state may not be able to afford in future years. Under Schwarzenegger’s plan, the state would still have a $3.5-billion shortfall through fiscal 2008-09, and Hill says a third of it is because of his schools budget, which creates continuing costs.

“We think it is important for the Legislature to weigh the trade-offs” of spending on new school programs versus further reducing debt, Hill said.

She suggested lawmakers reject Schwarzenegger’s proposals to spend more than $1 billion on such things as classroom supplies, arts and physical education programs and subsidized preschool expansion. That money should instead go toward existing programs and to help schools address looming liabilities -- such as covering retirees with health insurance -- that threaten to drown them in red ink in coming years, Hill said.

Department of Finance spokesman H.D. Palmer said the new education programs the governor wants “are priorities not only for him but for both parties and principals and administrators at the local level.” Some school officials have said they would prefer to determine how the funds are used.

Palmer said Schwarzenegger’s budget includes billions in discretionary spending for schools and money for assessing long-term obligations such as healthcare costs. The assessments could later help the state determine how much money to set aside, he said.

Assembly Speaker Fabian Nunez (D-Los Angeles) said Monday that Democrats have their own ideas about how to allocate the extra school money, and probably will propose using some of it to address funding inequities throughout the state. “We have to be careful not to generate too many programs that have ongoing costs,” he said.

Nunez also said the Legislature will be looking closely at the governor’s plan to spend $400 million on emergency equipment, hospital beds and special staff to prepare for a natural disaster or outbreak of bird flu.

“How do we arrive at $400 million?” he asked. “I’d like to know more about how we got there.”

Hill said that plan is too expensive, and suggested lawmakers slash it by a third, spending no more than $268 million. According to her staff, the proposal would give state officials the authority to purchase equipment without going through a competitive bidding process, potentially driving up costs.

Schwarzenegger’s plan also devotes state money to things that could be covered by the federal government, and assumes months for the purchase of equipment that Hill said could take years to acquire.

Sandra Shewry, director of the California Department of Health Services, said the administration shares the analyst’s goals of reducing costs and maximizing federal funds. But she said Hill is assuming the state will get federal money that may not be available.

As for competitive bidding, Shewry said, the administration intends to gather multiple bids for equipment purchases, but without going through the time-consuming formal process.

“We believe we can do that in a way that invites sunshine and gets the job done more quickly,” she said, adding that she believes the governor’s timetable for acquiring the equipment is reasonable.

Hill also urged lawmakers to reject the governor’s plan to use the boost in income from gas sales taxes to pay off bonds that fund transportation projects. The state has money set aside for those bonds, Hill said; the governor’s proposal would come at the cost of other transit needs.

Palmer said the governor’s plan is tied to the bond package he hopes voters will pass in November. That package includes billions of dollars in new transportation spending, Palmer said, and the governor felt it would be appropriate to begin putting money aside for it.

Nunez said Democrats see the sales tax on gas as an important source of funds for public transportation projects and they will resist the governor’s proposal to shift it elsewhere.

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Times staff writer Nancy Vogel contributed to this report.