Governor’s budget derails his lofty goals

SACRAMENTO -- — Gov. Arnold Schwarzenegger’s ambitious policy agenda collided with fiscal reality Thursday as he rolled out a proposed budget that threatens to unravel his investment in schools, healthcare and criminal justice programs.

At the same time he is pushing a $14-billion expansion of healthcare to nearly all Californians, his budget calls for a rollback of existing medical programs for the needy.

His hope of improving schools may be dashed by what he says is a need, for the first time in years, to cut by hundreds of dollars the amount spent on each student.

And an expansion of the prison system he hoped to reform is now eclipsed by his proposal to release tens of thousands of inmates and lay off prison guards.

Schwarzenegger’s budget recommendations put into stark contrast the disparity between his vision of what the state can accomplish and what it can afford in the current economy -- especially, say state finance experts, if he sticks to his promise not to raise taxes.

“I do not believe in tax increases,” the governor said in releasing his spending plan at a news conference in the capital. “I think the people of California are sending to Sacramento plenty of dollars. . . . If we cannot function with that money, there is something wrong with the system.”

Yet his vision for the state is costly -- and contradictory. Proposing that the state more than double the borrowing voters approved 14 months ago for public works, the governor compared himself to Franklin D. Roosevelt with the New Deal.

Bewildered lawmakers and activists said that reference was inconsistent with his administration’s bid to close nearly one of every five state parks.

“I don’t think it represents the governor’s values,” Assembly Speaker Fabian Nunez (D-Los Angeles) said of the proposed budget, which is intended to close a $14.5-billion gap over the next 18 months.

The plan includes some immediate cuts and others scheduled for the fiscal year that begins July 1.

The Democrats who control the Legislature said they would reject most of the governor’s recommendations. Many in the majority party are already at work on an alternative: bills to raise taxes on high earners, oil companies and alcoholic beverages, among other targets. Those bills will be opposed by Republicans, who hold enough votes to block any tax hike.

“There is no way to move us on that,” said Assembly Budget Committee Vice Chairman Roger Niello (R-Fair Oaks).

Months of gridlock appear likely as lawmakers set priorities and negotiate with the administration for a compromise budget.

The Capitol is rife with speculation that the harsh budget approach is intended to soften opposition to higher taxes, thus allowing Schwarzenegger ultimately to break his pledge not to raise them. The governor dismissed such talk.

“I have made it very clear that we cannot tax our way out of this problem,” he said.

The governor’s proposal would involve keeping as many as 50,000 convicted criminals out of state prisons through early releases and changes to the parole system. It would also mean excusing thousands of criminals sentenced to 20 months or less from serving any time at all.

The governor has also said he is prepared to drop the amount the state spends on each school student by more than $300 a year, and to eliminate cash grants for some children at risk of homelessness.

All of these options are preferable to raising taxes, he said.

“I can see every single person hurt by those cuts, and I understand how difficult they will be for many, many people,” Schwarzenegger said. “But the old way of balancing the budget by just grabbing money anywhere we can, . . . that time is over.”

The governor’s fellow Republicans already are criticizing his proposal for a surcharge averaging $10 a year on the property- insurance policies of millions of Californians, to pay for fire protection. The administration says that idea is not a tax but a fee; fiscal conservatives disagree.

“We cannot ‘tax and fee’ our way out of the crisis we are in today,” Assemblyman Michael Duvall (R-Yorba Linda) wrote Thursday on a conservative blog.

The proposed budget also includes an $11 increase in vehicle registration fees to fund the Department of Motor Vehicles and the California Highway Patrol.

Schwarzenegger has offered an austerity budget that conflicts with nearly everything he said about healthcare last year when he pushed his plan to expand coverage and increase efforts for preventive care.

That plan, which passed the Assembly and is pending in the Senate, would raise payments to those who care for the poor and enlarge the very programs the governor now suggests reducing.

The proposed budget would cut $4.7 billion from health and human services spending. It would cut $1 billion in payments for doctors and hospitals that take care of the poor. State- subsidized dental and optometry visits for the needy would be eliminated. State AIDS programs would be rolled back by $11 million.

Advocates for the poor say such cuts could lead to long-term costs for the state, undermining the governor’s pledge to wipe out what he says is a “hidden tax” paid to care for the uninsured. Medi-Cal patients could have a harder time finding doctors, limiting their access to preventive care and leading to a spike in costly emergency room visits.

A suggested $109-million cutback in a program that provides the frail elderly with workers to do their food shopping, laundry, meal preparation and other chores could force some out of their homes and into institutions, which are far more costly to the state.

The governor says he never again wants to be in the position of calling for such cuts.

His long-term solution is an approach that voters overwhelmingly rejected when he put it before them in 2005 but continues to enjoy strong report from Republican lawmakers: putting a constitutional cap on spending that would take effect during years when revenues are robust.

California would be forced to put the extra money into a rainy-day fund and use it to keep the budget in balance when the economy falters and revenues drop. The governor said such a system works well in Arkansas.

Like many Democrats, Sen. Dean Florez (D-Shafter) said he was not impressed.

“If the governor is looking at rural Arkansas as a model for addressing California’s budget issues,” he said, “perhaps California is just too big of a state for him to handle.”

--

[email protected]

Times staff writers Patrick McGreevy, Jordan Rau, Michael Rothfeld and Nancy Vogel also contributed to coverage of the governor’s proposed budget.

--

(BEGIN TEXT OF INFOBOX)

A CLOSER LOOK

THE SCHOOLS / Proposal called devastating

School groups are already mobilizing to fight the governor’s education plans. They characterize the cuts he has proposed as devastating.

Schwarzenegger’s proposal would take $400 million from public elementary and high schools and community colleges in the next six months, and cut an additional $4.3 billion next year. Per student funding would drop from $11,935 this year to $11,626 in fiscal 2008-09. It would be the first time in years that the state had actually reduced the amount of money it spends on each student.

Before any such cuts could be made, the Legislature would have to suspend Proposition 98, the constitutional spending formula that guarantees schools roughly 40% of all state revenue.

Paul H. Chatman, president of the California School Board Assn., called the cuts “the worst California’s students and schools have ever faced in the history of our state.” He said the governor’s budget plan “reveals a shocking lack of recognition of the real needs of kids and schools.”

California Federation of Teachers President Marty Hittelman said schools need the funds the governor hopes to cut this year to cover salaries and other expenses already budgeted. “Unless you close the schools, there’s not much you can do at this point,” he said.

But administration officials said they intended to minimize the impact of this year’s cut by capturing dollars that haven’t been sent yet to districts for targeted programs.

The University of California and California State University systems are not slated for cuts this year but have been asked by Schwarzenegger to each take a $100-million reduction in the next fiscal year. He suggested that university officials make up the difference with fee increases, limits on enrollment and program reductions.

“I am left wondering if the governor would suggest that UC and CSU deny entrance to 10% of incoming students,” said Sen. Jack Scott (D-Altadena).

Schwarzenegger tried to put the best face on cuts to kindergarten through high school education, saying he could have taken an additional $1 billion from schools without suspending Proposition 98 this year but chose not to because it “would have been devastating.”

He said: “We must protect our children.”

--

THE NEEDY / Cuts in healthcare, children’s aid

Low-income Californians would have a significantly tougher time accessing healthcare and cash assistance under the governor’s budget plan.

Two-thirds of participants in Healthy Families would be hit with premium increases. The program provides medical coverage for children of more than 800,000 low-income parents who earn more than the poverty level.

Medi-Cal patients would lose coverage for dental work and optometry.

Schwarzenegger’s reductions also include $720.9 million in payments for doctors and hospitals that accept Medi-Cal. That would amount to a 10% cut in rates that are already among the lowest in the nation, and could lead many doctors to refuse to accept those patients.

The average foster care grant received by family caregivers would drop from $715 a child per month to $644 per month. Schwarzenegger also proposed $198 million in cuts to child development programs and $59 million for before- and after-school programs that had been set up through an initiative Schwarzenegger championed before he ran for governor.

The governor’s budget would also mean that 620 poor elderly people would no longer receive meals from the state, and 30,000 more would be denied $20 worth of free produce from farmers’ markets each year.

As he has in past years, Schwarzenegger proposed cutting $462 million from the state’s welfare program, CalWORKS, by toughening eligibility rules. About 70,200 families receiving aid for more than five years would lose grants for their children if the parents did not adhere to federal work participation requirements.

Anthony Wright, executive director of Health Access California, a consumer group, said Schwarzenegger’s “budget actually exacerbates the problems” that the governor spent most of last year trying to solve.

However, Kimberly Belshe, Schwarzenegger’s health and human services secretary, said the state’s health programs would still provide a strong “foundation” to expand healthcare as the governor intends.

--

THE PRISONS / Early-release plan is praised, decried

The governor drew fierce derision and strong praise for his plan to give early release to tens of thousands of low-risk criminals and stop monitoring them on parole.

Schwarzenegger would also allow offenders newly sentenced to 20 months or less for nonviolent crimes to walk free without serving a day if they didn’t have a prior violent conviction on their records.

“The policy statement here is to prioritize that violent offenders will serve their time under the current laws and that the nonviolent [criminals] will get early release,” said James Tilton, secretary of the Department of Corrections and Rehabilitation. With the cuts, the agency’s proposed budget would be $10.3 billion.

The cuts would alleviate pressure on the state’s overcrowded prisons, which are under scrutiny by federal judges. Prisoner advocates, who applauded Schwarzenegger’s plan, say the crowding problem is worsened by California’s policy of putting every ex-convict on parole regardless of the crime, resulting in many being sent back to prison for minor violations.

The plan would need legislative approval by March 1 to start this year and achieve the savings Schwarzenegger needs. Some opponents called the governor a hypocrite for reversing his pledge not to release prisoners early. Aides said he was fulfilling a commitment to fix the state’s prisons by focusing on the most violent offenders.

Critics said the plan could overburden local law enforcement officials, who are already turning criminals away from some packed county jails.

“It’s unacceptable to balance the budget of California on the backs of the people who obey the law,” said L.A. County Sheriff Lee Baca.

Overall, Schwarzenegger’s budget estimates that his plan would cut the prison population, now 173,000, by more than 28,000 inmates next year and nearly 35,000 by 2010. As many as 2,000 prison guards would face layoffs.

For the state to reduce the inmate population enough to save, as it hopes, more than $370 million by 2009 and $750 million annually by 2010, it would have to keep 50,000 or more convicts out of prison, by some estimates. That is because many serve only a few months at a time; the state might have to get rid of three short-timers to eliminate one bed.

--

PUBLIC WORKS / More borrowing to fund projects

Even as he calls for cutting most everything else, Schwarzenegger envisions moving forward with the construction of multibillion-dollar public works projects.

The governor is proposing to ask voters to approve borrowing that would more than double what they authorized for such projects just 14 months ago, when they greenlighted a $37-billion bond package.

The money would be used to build courts, water projects, schools and high-speed rail.

The governor’s latest proposal calls for asking voters to sign off on $48 billion. The plan would come before voters in two pieces, the first to appear on the ballot this year, the other in 2010.

The planned bond packages include: $11.9 billion to bolster the state’s water system, $11.6 billion to upgrade kindergarten-through- 12th-grade schools, $12.3 billion to expand and improve state universities, $2 billion to repair and build courthouses and $300 million to strengthen state buildings for seismic safety.

The governor compared himself to President Franklin D. Roosevelt and his New Deal in proposing new building during lean economic times.

“He did not just wait and hope for something to happen,” Schwarzenegger said. “He was acting; he was making a move.”

State Senate leader Don Perata (D-Oakland) suggested that California needs to get more projects started with money already authorized before asking voters for more.

“We’ve got a lot of bond money,” Perata said. “There’s no reason why we can’t be putting people to work in droves, but we’ve got to get the stuff out the door.”

The plan calls for creating a Strategic Growth Council to coordinate the investment of funds, as well as to establish new benchmarks for the delivery of public works projects intended to boost efficiency.

Schwarzenegger says he hopes to leverage the money raised by voters with funding from the federal government and private sector. He’d like to see partnerships in which private companies build projects and run them for the state.

Politically powerful state employee unions continue to resist such partnerships.

--

Winners

California National Guard members: $1.8 million for in-state college fees.

Nonviolent prison inmates: Tens of thousands would be released early.

California Highway Patrol: $35.7 million increase, allowing for 120 new officers and 44 support positions.

State firefighting programs: $77.8 million from a new fee on property insurance premiums.

Some 65,000 children: Healthy Families enrollment would be at an all-time high, though families would pay more.

Bond underwriters, attorneys: $48 billion in new bonds proposed.

--

Losers

K-12 schools: Would lose $360 million in the next six months, $4.3 billion after July 1.

Community colleges: Would be cut $40 million this year and $48 million next year.

Property owners, renters: 1.25% surcharge on property insurance premiums.

Beachgoers, park users: 48 state parks would close, fewer lifeguards on beaches.

Seniors: Would cut about $20 worth of produce annually for about 30,000 seniors and state meals for 620 older adults.

Mentally ill: $32 million would be cut over two years in Mental Health Managed Care Program.

Source: Governor’s budget, Times reporting