Schwarzenegger's deficit plan hit

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By S.A. Miller

SAN FRANCISCO | Counties and cities across California are protesting Gov. Arnold Schwarzenegger's plan to raid their property- and gas-tax funds to help plug a $24 billion budget hole that threatens to bankrupt the state within weeks.

The recession and plunging revenues already forced local governments to make deep budget cuts. The governor's plan to borrow about $2.6 billion from local coffers would almost certainly cause further reductions in everything form law enforcement to road maintenance.

"I don't trust them at all. I'm not sure they would ever pay it back, as bad as they are," said Glenn Hawes, chairman of the Board of Supervisors for Shasta County, a rural community in the northern reaches of the Sacramento Valley.

"We are doing whatever we can - every county, Republicans and Democrats - to fight this," Mr. Hawes said. "We are sinking if this thing does not turn around."

The revolt comes as the Obama White House definitively quashed hopes here of a federal bailout to ease the state's money woes.

"It's obviously not an easy time for the state of California," White House press secretary Robert Gibbs told reporters in Washington. "We'll continue to monitor the challenges that they have, but this budgetary problem, unfortunately, is one that they're going to have to solve."

The plan to dip into local taxes is just one of the issues stymieing budget negotiations as California lurches toward insolvency. State Controller John Chiang last week warned of "a meltdown of state government" by the end of July if the budget mess is not addressed.

With revenues plunging, the Golden State also is having problems looking for loans elsewhere.

Standard & Poor's warned Tuesday that it would lower California's "A" rating unless Sacramento enacts budget changes that forestall a looming cash crunch. The shortfall could soon trigger deferred payments on lower priority items such as payments to vendors, student aid and tax refunds in order to make debt-service payments.

California already has the lowest state credit rating and the largest debt of any state, with $59 billion in outstanding general obligation bonds and $8 billion of lease-backed debt.

In Placentia, a hardscrabble city about 30 miles southeast of Los Angeles, a coalition of community groups has organized a protest rally Friday and plans to unfurl a banner that reads: "The bank of Placentia is closed. Say no to the state money grab."

"This plan to take local revenues from cities and counties is absurd and does nothing to solve the state's real fiscal problem," said Craig Green, a founding member of Citizens for a Better Placentia, one of the groups leading the protest.

Mr. Schwarzenegger's hopes to tap local tax coffers face opposition not only from county officials and community activists, but from Republicans and Democrats in the state Legislature.

State lawmakers also oppose Mr. Schwarzenegger's proposal for budget cuts, which include closing most of the state parks, shifting some inmates from state prisons to county jails, eliminating a health care program for low-income children and axing college-tuition assistance for low-income students.

Mr. Schwarzenegger, a Republican, is not backing away from his plan, while standing firm in opposition to tax increases proposed by the Democratic majorities in the Legislature.

"There have been protests every day," Schwarzenegger spokesman Aaron McLear said. "The bottom line is, we have to get to $24 billion."

He said Mr. Schwarzenegger would accept more budget cuts instead of borrowing the money from local governments. But lawmakers in Sacramento "have not indicated that they are willing to come anywhere near the cuts the governor is proposing, let alone cut $2 billion more."

Assembly Speaker Karen Bass, who is spearheading efforts to write an alternative budget proposal that is expected to be finished this week, said the final package would be a "balanced approach."

"It will be a combination of revenues and cuts," said Mrs. Bass, a Democrat from West Los Angeles. "Cuts will be deep and painful, but we will not eliminate basic safety-net programs."

• Patrice Hill in Washington contributed to this report.