Gov. Schwarzenegger set to unveil final budget proposal

Anyone looking for clues as to what the future holds for the California budget negotiations just needs to look back on the week that was.

It began Friday when the state controller’s office released revenue figures that show cash for April came in $3.5 billion below projections. Then, on Monday Sen. Dennis Hollingsworth unveiled his proposal for overhauling state pensions, with Schwarzenegger adviser David Crane as his star witness. Sen. Darrell Steinberg accused Republicans of wanting to double the state’s deficit through tax cut proposals, while Assembly Speaker John Perez saw some of his members pass $5 billion in tax increases.

Taken together, the past week highlights both the grim revenue picture the state faces and some of the policy priorities and efforts to frame the budget discussions currently underway inside the Capitol.

All that’s left now is Gov. Arnold Schwarzenegger’s May budget revision, which, like all forms of bad news, will be released to the media on Friday afternoon.

Schwarzenegger is prepared to unveil a budget with an estimated $20 billion deficit. Schwarzenegger spokesman Aaron McLear says about $2.5 billion worth of budget savings outlined in the administration’s January budget proposal is no longer viable because of inactivity on behalf of the Legislature.

As a counter, Democratic leaders say Schwarzenegger vetoed billions in proposed budget reduction measures passed by the Legislature earlier this year.

That back-and-forth underscores another complication as the budget negotiating season begins in earnest. Schwarzenegger has a working relationship with both Steinberg and Hollingsworth. But his relationship with Perez has gotten off to a somewhat rocky start. New Assembly leader Martin Garrick, R-Solana Beach, remains something of an unknown to the governor and much of his staff.

Over the last two days, Democrats have tried to frame the budget debate in anticipation of Schwarzenegger’s Friday announcement. Perez held two Capitol press conferences this week, vowing to “democratize” the budget process and refusing to hammer out the central agreement in closed-door negotiations with the administration and legislative leaders. And while Perez said “everything has to be on the table,” he said he wanted to limit cuts to education and public safety while seeking to maintain the state’s safety net of social programs.
But Garrick held a press conference of his own this week saying tax increases sought by Democrats were a non-starter.

As state revenues have come in below expectations, projections of assistance from the federal government have come up short. According to the legislative analyst’s analysis of Schwarzenegger’s January budget, “federal relief requests total about $8 billion—around 40 percent of the Governor’s proposed budget solutions.”

Democrats now say the amount of federal help will be somewhere between $3 billion and $4 billion. Schwarzenegger had introduced a list of programs his administration would seek to cut or eliminate if the federal dollars came up short. Among them was the proposed elimination of the state’s welfare system, elimination of the Healthy Families program and reducing eligibility for Medi-Cal.

Meanwhile, other issues could potentially be folded in to the budget negotiations.

On Monday, Hollingsworth unveiled his proposal to overhaul the state’s pension system. And while parts of his plan were embraced by Schwarzenegger adviser David Crane, Democrats indicated discussions of pension reform should take place during contract negotiations with the administration and state bargaining units.

“Those decisions ought to be made through the collective bargaining process,” Steinberg said, noting that proposed changes in the state’s pension plans would do nothing to alleviate the state’s current fiscal crisis.

Crane noted that the state’s increased pension obligations — which have risen more than $2 billion over the last decade — are directly related to legislation passed in 1999 and signed by then-Gov. Gray Davis. “The Legislature saw fit to preempt collective bargaining then,” he noted.

Steinberg said Wednesday he would like to see this summer’s negotiations include discussions of fundamental structural reform of state government, including turning over many decisions and funds to local jurisdictions.

“The present structure is not sustainable,” he said, adding that he would like to see a discussion of proposals put forward by California Forward and various lawmakers on how to reform state government.

Perez said he was open to those policy talks but that “those discussions should be disconnected from the budget discussion.”