Schwarzenegger declares budget emergency, proposes deep cuts

January 8, 2010 

California Budget

Gov. Arnold Schwarzenegger discusses his proposed 2010-11 state budget during a news conference in Sacramento, Calif., Friday, Jan. 8, 2010. Schwarzenegger unveiled a $82.9 billion general fund spending plan that makes cuts to health and human services, welfare, prisons, transportation and environmental programs.(AP Photo/Rich Pedroncelli)

RICH PEDRONCELLI — AP

Gov. Arnold Schwarzenegger unveiled an $82.9 billion state spending plan today that calls for no tax hikes but envisions pay cuts for state workers, reductions in services to California's neediest residents - and on the benevolence of the federal government.

The governor also declared yet another fiscal emergency, and called for yet another special session of the Legislature, designed to keep a projected $19.9 billion budget deficit from growing by another $2.4 billion.

"We must begin our work immediately," Schwarzenegger said in his message to legislators. "If we fail to take action in the special session that I have called, our problem will only grow, and the decisions that will be required to make up for lost savings will grow even more difficult than those now before us."

Under Schwarzenegger's proposed budget for the fiscal year that begins July 1:

• Temporary increases of sales and income taxes that were approved last year by the governor and lawmakers would be allowed to expire on June 30 and December 31, respectively. Last May, voters rejected proposals to extend the 1-cent sales tax hike and 0.25 percent income tax until 2012.

• The state's current 6 percent sales tax on a gallon of gasoline would be dropped, and replaced by a 10.8-cent increase in per-gallon excise taxes. Administration officials estimate the overall impact would be a 6-cent-per-gallon reduction in gas prices. The seemingly arcane switch would allow the state to legally cut the money it must currently pay to local governments for transportation programs, and to schools. That's because the sales tax revenues from gasoline are part of voter-approved formulas that determine how much the transportation and schools get from the state.

• About 200,000 state employees who currently must take three unpaid days off each month - equivalent to a 14 percent pay cut - would go back to work full time. But the furloughs would be replaced by a 5 percent pay cut; a 5 percent increase in contributions to retirement plans and a directive to all state departments to cut overall payroll costs by 5 percent through layoffs, attrition or hiring people at lower salaries.

• Spending on most elementary and high school programs would be kept at current levels. But a $1.2 billion cut would be sought in school district level administration. None of the cuts could be shifted to classroom reductions.

• The fastest-growing segment of state spending over the past decade - prisons - would be cut by $1.2 billion, most of it through reducing medical costs to prisoners. That could trigger even more legal battles with federal judges and a court-appointed federal receiver who are overseeing California's prison health system.

• Funding for Medi-Cal and services to Californians whose ability to care for themselves is limited would be reduced.

• Nearly $7 billion in federal funds are counted on to help balance the budget, including increases in money for health care and paying for undocumented immigrants in state prisons. If the feds don't come through with the extra money - and indications are that they are not likely to - social service and health programs from CalWORKS (the state's welfare-to-work program) to Healthy Families (which provides medical insurance to children of low-income families) would be eliminated or severely slashed.

Overall, state spending on day-to-day operations would drop from $86.1 billion in the current fiscal year to $82.9 billion, a 3.7 percent drop, and well below growth in the state's population. The proposed budget also reflects a 19 percent drop from three years ago.

The governor's proposals mark the first formal shots in what has become an almost-continuous struggle by the state's elected officials to balance recession-ravaged tax revenues with increasing demands for spending. Last year, Schwarzenegger and lawmakers closed a budget gap of more than $60 billion through tax increases, deep spending cuts, various accounting tricks and one-time band aids.