Schwarzenegger prepares to unveil final spending plan

Gov. Arnold Schwarzenegger intends to call the Legislature into emergency session to confront a nearly $6.6 billion budget gap in the current fiscal year. The governor is expected to outline his proposed solutions by Friday – when he will unveil his new budget for the 2010-11 fiscal year that begins July 1.

The emergency declaration, authorized under voter-approved Proposition 58, requires lawmakers to act within 45 days on his proposals or pass their own combination of cuts and revenue increases. There is no penalty if the Legislature fails to perform, although lawmakers are barred from adjourning or considering other issues until they act on the governor’s plan.

Politically, the time line is critical because the emergency session will unfold as lawmakers consider the politically charged confirmation of Schwarzenegger’s choice of Sen. Abel Maldonado, R-Santa Maria, for lieutenant governor. Maldonado will automatically become lieutenant governor unless the Assembly or Senate rejects his nomination before Feb. 22. His confirmation date could be accelerated if both houses confirm Maldonado before that date.

Schwarzenegger’s expected emergency announcement was welcomed by Senate Leader Darrel Steinberg, D-Sacramento. “The pro-tem wants to address the current year shortfall in the next several weeks,” said Steinberg spokeswoman Alicia Trost. “It gives us a jump-start on the larger problem, and makes it easier to maintain high-paying jobs in California.”
Pieces of the governor’s budget proposals emerged this week in anticipation of his Friday Sacramento press conference.

Democrats are hoping to mitigate some of the deepest cuts to social programs, while delaying proposed tax breaks for large corporations, negotiated during last year’s budget stand-off.

Democrats may also seek to maintain temporary tax hikes passed last February. Those may include short-term hikes in vehicle license fees, temporary income tax hikes and a continuation of a 1-cent increase in the statewide sales tax. The latter, projected at about $6 billion, actually is worth about $5.2 billion a year because of the state’s weak economy.
Administration spokesman Aaron McLear declined to discuss details of the budget.

Transit officials are also concerned the administration may try to make an end-run around a Constitutional measure that protects funding for transportation and public transit projects. Rumors abound that the administration is considering an elimination of the sales tax on gasoline, which is specifically ear-marked for state highways, local roads and public transit. In its place, the administration is said to be considering an increase in the per-gallon excise tax, which could give the administration more flexibility to take money away from local governments and transit agencies.

The state faces a $20 billion shortage, a figure that reflects budget shortages from 2009 through 2011, with roughly $6.6 billion the first year and $13.3 billion in the 2010-11 budget year, according to the governor’s estimates.

The governor also is considering a series of program cuts or eliminations, sources said. He signaled his thinking in a Dec. 22 letter to House Speaker Nancy Pelosi, in which the governor said health care programs in California could fail unless federal funding was forthcoming.

“Federal funds have to be part of our budget solution because the federal government is part of our budget proble,” Schwarzenegger said Wednesday. “We are not looking for a federal bailout, just for federal fairness.”

Some programs – at least in theory – could be eliminated entirely, such as In-Home Supportive Services or CalWorks, the state’s welfare assistance program.

 “That’s because they are not protected by the federal maintenance of effort requirement,” said Frank Mecca, head of the County Welfare Directors Association. “It’s unfathomable to think of either one being eliminated, but technically neither one is federally required.”

 The governor proposed eliminating CalWORKS in last January’s budget, but relented after pressure from legislative Democrats.

 Administration sources indicated Schwarzenegger’s budget would anticipate increased revenues from Washington, and score those dollars in their revenue projections for the year.  McLear noted California pays more to Washington than it receives back in federal dollars, and said the governor was hoping to “redefine the relationship” between Washington and Sacramento.

 Schwarzenegger is expected to continue his plan to save money through reduced state worker compensation, but it was unclear whether he would continue with the furlough program. Some sources have indicated a straight salary reduction might be an alternative to the current furlough program, which has been met with some resistance from the courts. Layoffs of state workers could be another way to realize that savings.

There are currently 24 lawsuits pending regarding state worker furloughs. Recent trial court rulings have split over the legality of those furloughs. The administration is appealing the decisions, and the administration expects to score at least another $1.3 billion in savings from reduced state worker compensation in 2010-11.

 While this year’s budget is not as dire as the 2009-10 budget passed last year, lawmakers say it may be harder to bridge the budget gap this year. A number of budget balancing tools have already been exhausted, and there is less one-time federal stimulus money coming into the state this year. That money was instrumental in circumventing some of the deepest cuts in health and education last year.

 Lawmakers have also had their hands tied by the courts in a number of different ways. Proposed cuts to public transit and in-home support services have been reversed by judges.
Under the provisions of Proposition 58, a declaration of a special session would force lawmakers to get an early start on the state budget problem. After the 45 days expire, lawmakers would be unable to adjourn or discuss any other bills until a budget solution is passed. Practically, the special session is not expected to have much effect, since a full slate of legislative hearings is not expected to begin for weeks. But it ensures the Legislature will take another shot at closing the state’s budget gap while the political fate of  Maldonado hangs in the balance.

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