Gov. Offers Ambitious Plan for State’s Budget Windfall

SACRAMENTO —  Gov. Arnold Schwarzenegger announced a $131.1-billion revised budget plan Friday that would reduce the state’s debt, increase school funding, launch new healthcare and law enforcement programs and build the biggest reserve in nearly a generation.

But the proposed $2.2-billion rainy-day fund -- the largest in California since 1978 -- may be at least partly illusory: A large chunk of it would be immediately swallowed up by pay boosts for tens of thousands of state employees, more than half of whom are preparing to strike after working without a contract for nearly a year.

The spending blueprint includes no raises for about 153,000 state workers -- janitors, prison guards, Department of Motor Vehicles clerks and others -- whose contracts end this year. The last pay increase state workers received, in the 2004-05 budget year, averaged 5%. Granting such a raise again would cost the state $600 million this year. Some union leaders say their rank and file are due even more.

The governor’s proposals would dip into state coffers flush from a surge in tax revenue to give hospitals and public health agencies a one-time infusion of $400 million to provide medicine, equipment, special staff and thousands of emergency beds. The money -- far more than any other state allocates -- would help prepare California for an outbreak of avian flu or a natural disaster.

The budget includes money to strengthen the state’s levees -- $500 million to begin repairing decades-old ones immediately and “help protect the people of California from a Katrina-style disaster.”

Schwarzenegger would provide schools an extra $2 billion to buy books, hire counselors, expand arts programs and meet other needs. It’s money that educators and the governor have been tangling over since he borrowed it to balance the state’s books two years ago.

Schwarzenegger committed to repaying schools an additional $3 billion in coming years.

The state’s chronic budget imbalance, which was nearly $10 billion when he signed his first budget in 2004, would fall to $3.5 billion.

Beyond repayment of the school funds, few of the new programs Schwarzenegger is proposing require spending into future years. He urged lawmakers not to deviate from that path.

“I am committed to fiscal discipline,” Schwarzenegger said at a news conference to unveil the spending plan. “No one wants to go back to the old days ... when we were bleeding red ink.

“We must continue to move forward so our financial health gets even stronger,” he said.

Passage of the state budget requires approval by two-thirds of the Legislature, necessitating bipartisan support. Lawmakers in both parties voiced optimism that a budget could be in place by the state’s July 1 deadline.

Late budgets have been a recurring problem, disrupting payments to schools, contractors and local agencies and tarnishing the state’s credit rating.

“The governor’s plan to use these resources for debt reduction and increasing the reserve is sensible,” said Senate Republican leader Dick Ackerman of Irvine.

Assembly Majority Leader Dario Frommer (D-Glendale) said: “I call it ‘Extreme Makeover: Political Edition.’ This is an election-year budget that’s clearly calculated to pacify some of the governor’s critics .... [W]e in the Assembly are delighted that this budget reflects priorities that Democrats have.”

The two Democrats hoping to unseat Schwarzenegger in the fall voiced different views. State Controller Steve Westly said the plan is too reliant on a one-time windfall. State Treasurer Phil Angelides said the governor should do more for schools and further reduce the debt.

Some union officials said the administration should have set aside money for state workers.

“Obviously, Gov. Schwarzenegger places no value whatsoever on the work that our members do to keep California healthy, safe and strong,” said Jim Hard, president of Service Employees International Union Local 1000.

The union represents the 87,000 state employees working without a contract. Union officials say one-third of its members earn less than $32,000. They are demanding that the governor allocate $400 million in the budget to raise those salaries to match those in local governments.

On Monday, thousands of the rank and file protested against the governor at the Capitol. Union leaders are moving forward with a strike vote and say their members could start walking off the job in mid-June. Administration officials say such a strike would be illegal.

Schwarzenegger said no money was set aside for raises in his new budget because the administration is still in negotiations with state employee unions. The money can be allocated after talks are over, he said.

Department of Finance Director Mike Genest said the administration would use the reserve to cover those costs.

As Hard angles for a fight, other state employee union leaders are taking a wait-and-see approach.

Chuck Alexander, the California Correctional Peace Officers Assn.’s executive vice president, expressed confidence that the roughly 25,000 prison officers he represents will work out a deal with the administration. Their contract expires July 1.

“I’m very optimistic that the administration will come to the table, and we can work out some deal,” Alexander said.

The governor announced that state revenues have exceeded official forecasts by $7.5 billion. Nearly $5 billion is already in state coffers; the rest is the result of revised projections.

Genest said about a third of the windfall is from taxes on stock market earnings and other capital gains. He said much of that is probably a one-time surge that the administration is not projecting for next year.

The governor’s budget would expand a program to provide preschool to low-income families. Schools would get grants of $25 per student for art and music programs and additional money for supplies for such programs. New money would be set aside to hire more counselors for seventh- through 12th-graders.

Some of the school money would go for new gym equipment, library materials and expansion of vocational education programs. Overall, per-student spending would increase from its current level of $10,325 to $11,268.

California Medical Assn. Chief Executive Jack Lewin said the $400 million proposed for emergency preparedness “defines California as a leader among the states in preparing for the threat posed from a pandemic.”

The program would create two mobile field hospitals with a total of 400 beds, and equip existing hospitals with more than 41,000 “alternate care beds.” It also would pay for 3.7 million doses of antiviral medicines and double the availability of ventilators in the state.

About 24,000 low-income children who are on waiting lists for county healthcare programs would receive coverage under the governor’s proposal. And the state would launch a 20-year plan to build 10,000 units of housing for the mentally ill.

The administration is moving forward with plans to cancel a scheduled $114-million increase for child care for welfare recipients, saying use of the program has decreased. County social service officials have countered that the funds are sorely needed.

State parks, fish and wildlife restoration initiatives, and habitat conservation would get a boost, as would a program to reduce greenhouse gases.

In the area of law enforcement, the governor’s plan would add $142 million. The money would be spent on new prosecutors, investigators and advocates for a special unit to prosecute “particularly heinous” crimes such as rape and child abuse. More officers also would be added to community crime prevention programs that target at-risk youth. Some of the funds would be used in efforts to reduce recidivism among mentally ill offenders.

Times staff writers Dan Morain and Peter Nicholas contributed to this report.

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The highlights

A windfall of tax revenue has left Gov. Arnold Schwarzenegger billions of dollars to spend beyond what he proposed in January. Here is where he wants to put the money:

$400 million

- For emergency preparedness -- hospital beds, medicine and equipment to prepare for a pandemic flu or natural disaster.

$2.2 billion

- In a rainy-day fund, the biggest since 1978.

$2 billion

- Partial repayment of money the state borrowed from schools.

$3.2 billion

- Early payment of state debt.

Source: Times reporting