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2004-01-09 -- Schwarzenneger Budget: preliminary look

  *  $900 million cut to Medi-Cal

  *  Freeze enrollments in state's Healthy Children's program, some
150,000 more kids to be uninsured over nex 18 months

  *  Enrollment caps on health programs for poor and elderly
and benefit cuts in state health programs for poor and disabled.

  *  Fee increases, decreased services, enrollment reductions in state
university, college, and community college programs.  44% fee increase
per unit for community colleges. Elementary schools and community
colleges had already agreed to sacrifice $2 billion already owed by
state in return for promise of no further cuts.

  *  $1 billion in gasoline tax money reserved for public
transportation by Prop 42 to be used to balance budget instead.

  *  $1.3 billion taken from counties' property taxes, repeating a
similar move in early 1990's which was supposed to be temporary but
was never repaid.

  *  Assumes March electoral passage of $15 billion bond to cover
existing deficit,  $14 billion deficit expected for next year, but no
new taxes or even re-instatement of reduced taxes.  Bonds to be sold
to cover next year's operating expenses, such as contribution to state
employees' pension funds.  California already has the nation's lowest
bond rating.  $14 billion of short-term notes due in June.

  *  Even this budget based on expectation of an additional $2.9
billion tax revenue, a 4% increase, from economic recovery

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San Francisco Chronicle, Friday, January 9, 2004

Proposed budget hits local governments, health, social services

TOM CHORNEAU, Associated Press Writer

URL:
sfgate.com/article.cgi?file=/news/archive/2004/01/09/national1430EST06
57.DTL

(01-09) 11:30 PST SACRAMENTO, Calif. (AP) --

Gov. Arnold Schwarzenegger unveiled a $99.1 billion budget plan Friday
and proposed cutting billions of dollars from public health and
welfare programs to help pay for it.

Schwarzenegger did not include any new taxes in the plan, but he did
request higher fees on users of state parks and on college students.

"For the past five years, the politicians have made a mess of
California's budget," Schwarzenegger said. "Now it's time to clean it
up."

The biggest hits are aimed at the state's Medi-Cal program, which
would lose close to $900 million next year under the governor's
proposal. The state's program to bring welfare recipients into the
work force is also targeted in his plan with a $800 million cut.

City and county governments, already upset by the loss of about $4
billion they were expecting from a car tax increase that
Schwarzenegger repealed, also would lose out.

The governor proposed taking an additional $1.3 billion that the local
governments are counting on and instead use it to pay state expenses.
The move is a shift from Schwarzenegger's previous pledge to protect
the local governments, though he said Friday that he would still find
a way to replace the lost the car tax revenue.

Schwarzenegger's budget is built on a rosy economic picture next year,
projecting $2.9 billion in additional tax revenue to be available in
2004-2005.

Getting support for the spending plan won't be easy. Schwarzenegger
surprised and angered local government officials, and Democrats, who
control both houses of the Legislature, have said the burden of the
state's fiscal crisis shouldn't fall on the poor and disabled.

The hit to public health includes caps on enrollments for the state's
health insurance program for the poor and elderly. The governor also
called for the elimination of some medical benefits for the poor and
disabled.

Community college students would be asked to pay an increase of $8 per
unit.

Some social service advocates say tax increases should be used instead
of spending cuts to solve the state's problems.

"I expect that there will still be hard hits on health programs that
will hurt children and working families very hard," said Catherine
Teare, spokeswoman for the Oakland-based advocacy group, Children Now.
"I just don't see how this all gets done."

According to estimates updated this week, the state will have a
deficit of nearly $27 billion by June 2005 -- created by an existing
deficit of $12.6 billion run up over the past three years and a
projected shortfall of $14 billion by the June 30, 2005.

Schwarzenegger and the Legislature have put a $15 billion bond issue
on the March that would pay off the existing deficit, but the $14
billion projected deficit for next year remains.

A key underpinning of his plan to balance the state's budget without
raising taxes had been backed by educators, who agreed to accept $2
billion less next year than they are owed.

But even if legislators approve Schwarzenegger's budget plan, which
will be revised in May, it will mean little if voters don't approve
the $15 billion bond deal in March. So far, administration officials
said, early polls indicate voters don't like the measure and may not
pass it.

If voters reject the bonds, most observes believe the resulting budget
hole will force Schwarzenegger to reconsider his no-tax pledge.

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Governor's Budget Targets Cities, Counties
By Jesus Sanchez

Los Angeles Times, January 9, 2004

Gov. Arnold Schwarzenegger today unveiled a budget plan that slashes
funding for local government and transportation, hikes college fees
and reduces health benefits for low-income Californians.

The proposed cuts, which are likely to face stiff opposition from the
Democratic legislature, come as the Republican governor attempts to
close what he says is a $15-billion deficit for the fiscal year that
begins in July.

The budget includes no new taxes, but the governor proposed to reduce
the deficit in part by boosting the state's share of revenues from
Indian gambling and by significantly increasing student fees.

"It is difficult. It is painful," Schwarzenegger said in response to a
question during a Sacramento press conference. "This is the only way
we can do it because we don't have the money."

Those who saw the proposed budget before its release today said it
includes at least $1 billion of the kind of borrowing that
Schwarzenegger criticized when he was elected and that a Sacramento
judge declared illegal last year.

The budget plan would involve selling bonds to cover the state's
annual payment to the pension fund for government employees, freeing
up other money to pay down the state's deficit.

The borrowing would be on top of Schwarzenegger's $15-billion bond
proposal that will come before voters in March. The governor had
earlier characterized the $15 billion in bonds as the last the state
would sell to balance the budget.

Schwarzenegger's proposal would involve taking property tax money from
local governments and using it to pay some of the state's obligation
to schools. City and county officials say they are still suffering
from the last time the state made such a shift, during a budget crisis
in the early 1990s. That move was supposed to be temporary, but the
money was never restored.

Officials familiar with the spending plan said it includes about $11
billion in cuts, borrowing and accounting maneuvers that delay the
payment of various state expenses.

Many of the cuts are one-time only, and thus would do nothing to solve
the structural imbalance between what the state spends and what it
receives in revenue.

The governor's budget calls for saving money by not paying more than
$2 billion owed to elementary and high schools and community colleges.
Leaders of several major education groups struck a deal with the
governor - formally announced Thursday - to support his plan to
postpone paying that money in exchange for a pledge not to push for
deeper cuts.

As a result, payments to schools would be the same as they are this
year, plus a modest increase to cover enrollment growth and
cost-of-living adjustments.

For in-state undergraduate students in the Cal State and UC systems,
the governor's budget keeps a promise he made in his Tuesday State of
the State address to limit their tuition increase to 10%.

Community college students and graduate students at UC and Cal State,
meanwhile, are in for major fee hikes. At community colleges, fees
would go up from $18 per credit to $26 under the proposed budget.
Graduate students would see fee increases of as much as 40%.

Government assistance to low-income Californians would also be reduced
under the plan, which proposes capping enrollment in major health care
programs.

Also targeted for major cuts are transportation projects. The governor
is proposing taking roughly $1 billion in gasoline tax money that is
supposed to be earmarked for transportation under voter-approved
Proposition 42. That money would instead go to balancing the budget.

Transportation officials have said that would lead them to put off
significant road building and repair projects, as well as alternative
transportation initiatives.

The governor also is asking the federal government for at least $40
million to defray the $65-million cost of fighting this fall's
Southern California wildfires. And he will seek to impose new fees on
timber interests seeking approval of logging plans. The California
Conservation Corps would suffer a cut of nearly $13 million, about 14%
of its budget.

Just as former Gov. Gray Davis did, Schwarzenegger is seeking help
from Indian casinos in balancing the budget. He is proposing
renegotiating gambling compacts to generate $500 million for the
state. Tribes have expressed little interest in doing that.

Times staff writers Evan Halper, Jeffrey L. Rabin and Nancy Vogel
contributed to this report.