- The Washington Times - Friday, January 2, 2004

SACRAMENTO, Calif. (AP) — Gov. Arnold Schwarzenegger faces a state budget deficit of at least $14 billion. He campaigned on a promise not to raise California’s taxes.

So there are likely to be few surprises next week when the new Republican governor releases his budget — it will contain cuts, cuts and more cuts.

While the administration has released no details of the 2004-2005 spending plan, lawmakers and lobbyists engaged in budget negotiations with the governor say they expect to see a painful list of spending reductions that reach every corner of the state bureaucracy.

Topping the list are likely to be public health and welfare programs — especially Medi-Cal, the state’s health insurance for the poor and disabled that costs more than $10 billion a year.

Education also is expected to share the burden, despite Mr. Schwarzenegger’s campaign promise to protect school funding.

He is likely to renew his pledge to get a bigger share of Indian gambling profits, and his call for new concessions from labor unions. And there are hints of reforms and reorganizations aimed at making the state more efficient and cost conscious, including changes in parole and inmate supervision.

The governor’s finance director, Donna Arduin, is known for cutting billions in social services in Florida as budget director for Gov. Jeb Bush.

Tempering all the bad news, however, the governor is expected to paint a rosy economic outlook where billions of dollars in unanticipated tax revenue in the next year will let him sidestep some of the most difficult funding choices.

And there are no expectations of any new taxes.

“I think the governor has been fairly clear about that,” said H.D. Palmer, spokesman for the governor’s Finance Department, although there have been no similar promises regarding raising fees. “The plan is to control spending.”

Still riding a wave of popularity since winning office in a historic recall election in October, Mr. Schwarzenegger takes over at a critical time.

While former Gov. Gray Davis and the Legislature took some steps last year to solve the state’s financial problems, spending remains badly out of balance with income.

The budget agreement in the summer used a long list of one-time savings, accounting gimmicks and borrowing to make ends meet. The one-time savings and many of the gimmicks expire at the end of this fiscal year, and analysts say a new deficit will begin growing almost immediately that will exceed $10 billion by June 2005.

One of Mr. Schwarzenegger’s first moves as governor, repealing a tripling of the car tax, also has added $4 billion to the deficit.

Looming on the horizon is another multibillion-dollar problem. The summer budget agreement included $12.6 billion in loans that have been held up by legal challenge because the debt was not approved by voters.

Mr. Schwarzenegger and the Legislature agreed last month to put a $15 billion bond measure on the March ballot. If voters do not agree to the borrowing, the state quickly could find itself in an unprecedented fiscal crisis, forcing the governor to drastically revise his budget priorities and promises.

But the governor’s upcoming budget is expected to assume that voters approve the big bond measure, which means that the problem is $14 billion — still big enough to require cuts in all areas of the budget.

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