Governor Unveils State Budget, Declares Fiscal Emergency

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Across-the-board 10% cuts are a key feature of the state budget released Thursday by Governor Arnold Schwarzenegger, in order to close an estimated $14.5 billion shortfall over the next 18 months. KPCC's Shirley Jahad spoke with State Capitol Reporter Julie Small about how the budget is being received in Sacramento.

Shirley Jahad: Drastic and dramatic cuts announced today in Sacramento as Governor Arnold Schwarzenegger unveiled his budget proposal. He is proposing cutting 10% of state spending to offset a projected multi-billion dollar drop in revenues that's expected next year because of the cooling housing market. Right now, the state is facing an immediate three and a third billion dollar shortfall, so the governor is declaring a fiscal emergency. He's calling in lawmakers to a special session to work on that right away. KPCC state capitol reporter Julie Small is covering the story and joins us now live. Good afternoon, Julie.

Julie Small: Good afternoon, Shirley. You know, today was really a somber occasion, being that the $9 billion in cuts that Governor Schwarzenegger is proposing affect just about every area of government. So, now, the governor is known for his unrelenting optimism, but as you'll hear, he was fairly subdued today when he delivered the bad news.

Governor Arnold Schwarzenegger: This is a budget that doesn't please everybody. I know that for sure. And you will have people coming out of this room afterwards and spinning why this is all terrible. But the bottom line is, I think this is the fairest way to go, and we wanted to show and send a signal that we don't cut back on what is popular amongst Republicans, or cut back with what's popular amongst Democrats. It was across the board.

Small: And Shirley, those cuts were pretty sweeping. Cuts to the governor's office staff and the legislature, healthcare, education, the judiciary, even prisons.

Jahad: So, sweeping cuts. Tell us about the reaction there from Democrats and others.

Small: Well, the Democrats thought the cuts were worse than they had expected. Here's what speaker of the assembly Fabian Nunez had to say.

Assembly Speaker Fabian Nunez: One thing I can say about his budget, he really did not discriminate. He cut all the programs that people care about. This budget isn't going for an up or down vote today. Clearly, if it's passed as it is written, it would cause tremendous, permanent pain to the people of California.

Small: Now, Nunez says cuts that are both temporary and permanent to healthcare, welfare, and education don't reflect the values of Californians. They did give the governor some credit for cutting just $400 million from school funding this year. There are monies that educators are guaranteed under Proposition 98, and they're tied to state revenues, and the fund was actually over-allocated this year by about a billion dollars.

Jahad: So what about next year? The governor, in terms of education, wants lawmakers to suspend those constitutional protections for education money and save several billion dollars next year from that.

Small: That's right. And, you know, the governor got in big trouble when he suspended Prop. 98 before. Educators are really gonna– ready to go toe to toe to stop him from doing it again.

Jahad: So we're talking massive cuts in terms of education, healthcare, prisons. What are the Republicans saying?

Small: Well, they pretty much agreed with the philosophy of the across the board cuts, but Roger Niello, who's the Republican vice-chair of the Assembly Budget Committee, said he thinks it'll be pretty tough to get Democrats to agree to them.

Assemblyman Roger Niello: It's going to be an ugly year, unfortunately, but the approaches of the past aren't working. We're not going to be able to cram into the glass slipper of the past, the see-through gimmickry that we've tried in the past. We are beyond accounting maneuvers, we're beyond additional borrowing. We've got to make tough decisions.

Small: But there was a proposal in the governor's budget that Niello found to be pretty tough, and that's to save two and a half billion dollars by releasing 20,000 state prison inmates early, or placing another 10,000 on summary parole, which means they'd be released without mandatory supervision. Now that would save the state the cost of imprisoning those inmates, and the corrections department thinks it could shed 6,000 staff positions, mostly correctional officers.

Jahad: Ooh. That sounds like it might create a bit of an outcry from the public and from a lot of political figures. But we've been hearing from a lot of pundits that maybe the governor is making these extreme proposals to create a kind of political cover and go forward with some kind of tax increases. Is that possible?

Small: You know, well, he's denying it vehemently, but that's certainly a negotiating tactic that you see a lot in Sacramento. People propose the worst case scenario to make something else seem like the lesser evil. And another possible example of that was the governor's plan to close 48 state parks and reduce lifeguard service at some state beaches. Will Rogers State Park, for example, Carlsbad State Beach. As Senate Leader Don Perata said, why not just charge people a few more dollars to use those beaches? I think most Californians would rather shell out a few extra dollars than have those parks shut.

Jahad: Now we're just at the beginning of this process. Lawmakers are gonna be starting a special session to resolve the fiscal crisis, and what are we seeing ahead with that?

Small: Well, they're going to be looking immediately in the next 45 days to find cuts to cover about three and a third billion dollar shortfall that we're experiencing in this fiscal year. If they don't find a solution, if they don't agree on budget cuts within 45 days, by statute, they can't go forward and vote on anything else. They're stuck dealing with that budget gap. But, so, they do have to fix it, and once that's done, then they'll wrangle for the rest of the year about next year's cuts. After that, the governor is hoping to get legislators to pass his constitutional amendment that would change the budget structure of California and create a rainy day fund, where we put money aside in plentiful years for years like this one, when we're facing severe deficits.

Jahad: KPCC's Julie Small up in Sacramento covering all the developments as they're unfolding there. Thanks a lot, Julie.

Small: Thank you, Shirley.