Spending plan has welfare cuts (Whittier Daily News)

By Mike Zapler and Kate Folmar Sacramento Bureau

Gov. Arnold Schwarzenegger on Monday fine-tuned his budget proposal for next year with a plan that would cut welfare programs, siphon $1.3 billion of public transit money for other state programs, and sell off a quasi-public agency that guarantees student loans.

The Republican governor's plan would leave the state with a $1.4 billion "net operating deficit" for the fiscal year starting in July. But Schwarzenegger said he was proud of paring a $16.5 billion deficit he inherited in 2003, without raising taxes.

The release of the governor's revised budget triggers the annual money debate in the Legislature, and Democrats were quick to criticize Schwarzenegger's welfare proposal. It calls for denying cost-of-living increases to welfare recipients and halting payments to poor families with children after five years. Democrats said it targets those who can least afford it: poor families, seniors and the disabled.

"It looks like, once again, the most vulnerable Californians are in the free-fire zone," said Senate President pro tem Don Perata, D-Oakland, referring to proposed social service cuts.

Schwarzenegger called the plan a matter of necessity.

"I think that a lot of people deserve this money," Schwarzenegger said, "but I have an obligation, which is I promised the people of California that I will bring down the structural deficit to zero, and that we will be fiscally responsible."
Schwarzenegger relies on several one-time fixes to help balance the budget. He wants to shift $600 million from a tobacco settlement reserve fund into the state's general fund. And he would generate nearly $1 billion by auctioning off the state's EdFund program, which guarantees student loans. The governor also reiterated his interest in privatizing the state lottery, portraying it as a pain-free way to generate billions of extra dollars to pay off debt and finance state programs.

"We've got to find new ways of creating the revenues," Schwarzenegger said.

Overall, general fund spending would grow from

$102.3 billion in the current fiscal year to $103.8 billion next year, a 1.5 percent increase. Reflecting his confidence in California's economy despite a cooling housing market, the governor's finance team expects tax revenues to surge 5.8 percent - from $95.7 billion to $101.3 billion.

Among Schwarzenegger's proposals to find more than

$5 billion to balance the budget, his changes to welfare could be the most contentious. The governor wants to end state welfare payments to families with children after five years, and to deny cost-of-living increases to recipients of both CalWorks and a cash assistance program for the elderly, blind and disabled.

Raquel Cardenas, 30, said she receives a monthly welfare check of $650, plus $130 in food stamps, to support her 2- and 12-year-old daughters. Cardenas, who is divorced and rents a room in San Francisco, said she was trained as a graphic designer but can't work because child care for her younger daughter is too expensive. The governor's welfare plan will hurt, Cardenas said.

"Rent goes up, the cost of milk goes up, everything goes up except for" help from the state, she said.

Some social services fared better. Because of last winter's crop freeze, local food banks and a state agency that stores food for emergencies will see their total grant nearly double, to about $9 million.

And health advocates said there was little to praise or complain about in the state's health and human services budget, but they did approve of efforts to enroll more children in the Healthy Families subsidized health insurance program.

Transportation also looks to be a hot topic as lawmakers try to pass a budget by the June 15 Constitutional deadline. Schwarzenegger wants to move $1.3 billion in gas tax funds - which have surged recently because of spiking prices at the pump - into the general fund. Public transit advocates say the proposal will force public transit agencies to raise bus and rail fares and cut service.

Democrats are also upset that the governor wants to take hundreds of millions of dollars extra to make early payments on loans taken out during the dot-com bust.

Critics say the idea is like making an extra mortgage payment while ignoring the electricity bill.

Republicans, however, welcomed the move. The GOP wields more power over the budget than just about any other issue, because some Republican votes are needed to secure a required two-thirds vote.

"We have to bring expenditures in line with revenues, and we need to do it now," said Assemblyman Roger Neillo, R-Sacramento, the ranking Republican on the lower house's budget committee. "As painful as it is now, it will be even more painful if we delay it to subsequent years."

Republicans, however, weren't so pleased with another Schwarzenegger proposal that would eliminate the state's contribution - $40 million - toward a farmland preservation program known as the Williamson Act. Many of the state's rural areas are represented by Republicans.

Critics say the state subsidy is misguided, but the four-decade-old program remains popular with many farmers and environmentalists for reducing sprawl.

While many social services suffered, some areas of the budget still see increases - including spending on the governor's own office. Schwarzenegger proposes a 5 percent increase to pay for upgrading technology. He is expected to offer raises to his 185-member staff later this year, but those would come from existing budgets.

Even though the $1 million increase on governor's office spending is a tiny speck in the whole budget picture, it rankles some lawmakers, who could ax it from the budget.

There's no cost-of-living increase in grants to the aged, blind and disabled, noted Assembly Budget Committee Chairman John Laird, D-Santa Cruz, "but he says his office needs one. I think that would doom his proposal."

One powerful constituency - public schools - seemed to do particularly well under Schwarzenegger's budget plan. Per-pupil spending would increase more than $300, to $11,562.

But there was other good news - from funding to expand nutrition programs to a one-time $100 million block grant for school safety programs.