Schwarzenegger's vetoes prompt Democratic threats

[July 29, 2009]  SACRAMENTO, Calif. (AP) -- Gov. Arnold Schwarzenegger has signed a revised $85 billion budget and targeted welfare for deeper cuts, prompting threats from Democratic lawmakers to block his political agenda during his final months in office.

"This kind of game playing by the governor doesn't bode well for success in terms of water, corrections, pensions or any of the other items that he is looking to in order to build some kind of real legacy," Assembly Speaker Karen Bass said in a statement Tuesday after the Republican governor announced his vetoes.

Schwarzenegger called the latest budget package, aimed at balancing the state's budget through June 30, 2010, the toughest since he took office in 2003. He said the package included reforms he has long sought and forces government to live within its means by cutting billions, from education to prisons.

Schwarzenegger described the overall package as containing "the good, the bad and the ugly," the ugly referring to his additional cuts to child welfare programs, health care for the poor and AIDS prevention efforts. About 100 of 279 state parks also face closure, some as early as Labor Day.

"We cannot afford the programs that we used to be able to afford," Schwarzenegger said after using his line-item veto authority to save an additional $656 million.

The governor said additional cuts were needed to provide the state a cash cushion in tough times after the state Assembly rejected about $1.1 billion in revenues from local transportation funding and by allowing new offshore oil drilling.

His vetoes drew sharp criticism from advocates who said more children would go without insurance, foster families would receive less money and the state would cut HIV/AIDS testing.

"The governor's heartless act is not only deadly, but guaranteed to cost California taxpayers millions more in the future," said Michael Weinstein, president of AIDS Healthcare Foundation.

Schwarzenegger and lawmakers are hoping the new budget will provide relief to the state's cash crisis and allow the state to stop issuing IOUs. As of Monday, the state had handed out nearly 210,000 registered warrants worth $1 billion to vendors and contractors.

Schwarzenegger's finance director, Michael Genest, said it would take days for finance officials to finish analyzing the revised budget's impact on cash flow.

California's economy has been hit by the housing market slump and high unemployment, and the latest efforts to close a $26 billion shortfall came just five months after lawmakers and the governor ended months of negotiations to close a previous $42 billion deficit.

Despite more than $15 billion in spending cuts, the budget package plan will likely do little to improve the state's poor credit rating because it contains many accounting tricks. Fitch Ratings rates California's general obligation bond debt at "BBB," which is still investment-grade. Most states have a higher-quality "AAA" or "AA" ratings.

Among the questionable maneuvers in the plan, the state will accelerate income tax withholding by 10 percent to inflate revenues during the year and shift state employee payroll by one day for a paper savings of $1.2 billion. The state also will sell a portion of its workers' compensation insurance business for $1 billion, which the Legislature's nonpartisan analyst doubts can be done within the fiscal year.

Schwarzenegger angered Democrats who hold a majority of seats in the Legislature by targeting social programs in his vetoes.

Democratic negotiators who had blocked the administration from eliminating safety net programs during budget negotiations immediately questioned whether the governor had authority to many of his vetoes. They argued he can only reduce new appropriations, not revisions handed down by the Legislature.

"We will fight to restore every dollar of additional cuts to health and human services," Senate President Pro Tem Darrell Steinberg said. "This is not the last word."

Assemblyman Jim Nielsen, R-Yuba City, said some of the governor's cuts could be prevented if lawmakers reconsidered allowing additional oil drilling off the Santa Barbara coast. Nielsen, who serves as vice chair of the Assembly Budget Committee, said it's likely more budget changes will have to be made in coming months.

The governor's vetoes included $80 million from child welfare programs; $61 million from county funding to administer Medi-Cal, California's version of Medicaid; $52 million from AIDS prevention and treatment; $50 million from Healthy Families, the low-cost health insurance program for poor children; and $6.2 million more from state parks.

Even with the revised budget deal, California will need to borrow $8 billion to $10 billion to cover its cash needs this year. The state faces another $7 billion to $8 billion deficit next year.

[Associated Press; By JUDY LIN]

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