Governor proposes $5.5 billion in new cuts

Gov. Arnold Schwarzenegger presented a new round of possible budget cuts totaling $5.5 billion on Thursday, two days after voters rejected five special election initiatives that would have brought in about that same amount in new revenues.

Anna Montesantos, an aide to the governor, presented the cuts to the Legislature's Budget Conference Committee on Thursday afternoon. The state would eliminate support for Healthy Families, a program that provides health insurance to hundreds of thousands of low-income children, and CalWorks, an assistance program benefiting low-income families with children.

"These are options we are examaning to get to an addition $5.5 billion, " said H.D. Palmer, deputy director for external affairs at the California Department of Finance. He added, "There is no formal proposal yet."

The administration said the governor's plan also would phase out all General Fund support for the state parks system, and gradually eliminate grants to college students through the Cal Grants program.

Earlier Thursday, Schwarzenegger said in a written statement that based "upon information I gathered in meetings I held while in Washington D.C., discussions with the legislative leaders, and the will of the people who said loudly and clearly in Tuesday's election that they want Sacramento live within its means, yesterday I directed my Department of Finance to bring me additional options to cut state spending so that we can eliminate the need to seek borrowing in the form of a revenue anticipation warrant in the revised state budget I have proposed."

On Wednesday, the governor held a "Big 5" meeting with the Senate and Assembly leaders from each party. That meeting reportedly failed to reach any agreement on new revenues.

On Thursday morning, Treasury Secretary Timothy Geithner said that the federal government would not guarantee billions in Wall Street loans to California without Congressional action. Schwarzenegger had been seeking a federal guarantee for up to $6 billion in loans.

Palmer said the administration was trying to find cuts that would not endanger federal stimulus money or matching funds.

"We're going to be evaluating that issue as we go forward in the coming days," Palmer said. He added, "The range of options were looking at is designed at not putting any federal funds at risk."

According to an analysis issued by the California Budget Project, the governor's earlier proposal to cut 225,000 kids from Healthy Families would save $55 million but lose the state $101 million in federal funds.

Assembly budget chair Noreen Evans, D-Santa Rosa, said the governor had essentially blindsided legislators in a statement after the hearing.

"Unexpected twists make for good Hollywood stories but bad governance, especially in a time of crisis. We must work together to get through this historic budget challenge. And, we have precious little time to waste. We look forward to seeing the Governor's final revision so that we can hold meaningful public hearings." 

The governor's Cal Grants proposal would save the state about $1 billion by eliminating 296,000 grants to college students, including about 125,000 in community colleges.

"With the proposal the governor released last Thursday, we were looking at losing 250,000 students," said Scott Lay, president and CEO of the Community College League of California. "Now, this proposal assures that the students will leave by no longer providing them with financial aid. This is the downsizing of education. In dollars adjusted for inflation, it puts us back to 1982."

He said UC and CSU also would be effected, although in different ways.

"CSU will lose students, and UC may not lose but the demographics of the students, at Berkeley, for example, will change. You'll see wealthier, out-of-state students," Lay added.

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