Down to the wire on California's budget crisis

This state’s largest newspaper has dubbed the two plans “grim and grimmer.”

Unveiled by Gov. Arnold Schwarzenegger on Thursday, the proposals are meant to address the state’s budget crisis, which has grown by $21.3 billion since a bill was signed in February, closing a $42.5 billion gap – the largest state budget gap in American history.

With six initiatives on a special election ballot for Tuesday – all designed to deal with the state’s chronic economic problems – one of Governor Schwarzenegger’s plans is to deal with what the state’s deficit will be if the measures don’t pass ($21.3 billion). The other is for what happens if they do pass (a $15.4 billion deficit).

Five of the measures seem destined to fail, several state polls show. They include, among other ideas, altering the state lottery, extending recent tax increases, and diverting money from voter-approved programs. They account for $6 billion of the deal Schwarzenegger and lawmakers reached in February.

“This is the harsh reality of what we face,” Schwarzenegger told a Capitol news conference. “Sacramento is not Washington.... We can’t spend what we don’t have.” The state’s annual income-tax collections have fallen for the first time since 1938.

“Obviously, the situation is unprecedented, and the state can't print money to take care of the deficit,” says Robert Stern, president of the Center for Governmental Studies in Los Angeles.

In both plans, Schwarzenegger has to borrow $6 billion, cut K-12 education by $3 billion, lay off 5,000 of the state’s 235,000 workers, cut funding to hospitals, and possibly reduce eligibility for healthcare programs – if he can get federal permission.

He also will be eliminating several boards and commissions, consolidating others, and selling several state landmarks, including San Quentin prison and the Los Angeles Coliseum and Sports Arena.

But just by mentioning all this, only five days before the vote, Schwarzenegger is being accused by critics of trying to scare voters into approving the initiatives. In 2004, four Schwarzenegger-backed initiatives all failed, dealing the governor a severe political blow, and many think another, similar setback will weaken him significantly.

“Releasing these numbers one week before the election is an obvious attempt to scare voters into voting for these failing measures,” says Mike Roth of the “No on 1A” campaign.

There has also been a barrage of TV ads around the state, with one firefighter mentioning that 23,000 firefighters could be cut, and another ad saying, “we could lose 43,000 teachers, see class sizes increase, and more schools close.” The cuts from education will be $5 billion if the measures fail, forcing a possible seven-day reduction in the school year, on top of billions the state cut in February.

But Barbara O’Connor, director of the Institute for the Study of Politics and Media, at California State University, Sacramento, doesn’t fault Schwarzenegger and instead says the public may not really understand the choices.

“I don’t think [voters] have a magnitude check of what these cuts will look like if the propositions don’t pass, and that’s the need for the fear appeal,” she says.

Though state officials say the education cuts could be mitigated by federal stimulus funds, Kevin Gordon, president of School Innovations and Advocacy, says the US government may not allow California to simply replace its own funds. That would violate “the spirit of what leaders in Washington, D.C. intended,” he said.

“If voters fail to approve the propositions, our schools will undergo another round of massive cuts – further unraveling public education in this state and hurting our kids,” said David Sanchez, president of the California Teachers Association, in a statement.

The state also would ask the federal government to assume responsibility for an undetermined number of the 19,000 illegal immigrants held in state prisons. Ultimately, that would result in most of those prisoners being deported, according to state Finance Director Mike Genest.

The second of the two plans involves borrowing $7.5 billion from financially strapped local governments and a vastly depleted investment market. Some 225,000 children could lose healthcare coverage.

Schwarzenegger also proposes raising $1.8 billion by approving an oil lease off Santa Barbara County, a project recently rejected by the State Lands Commission. The lease would allow the first oil-drilling project off the state's coast in 40 years.

Lands Commissioner and State Controller John Chiang objects to the proposal because he feels it would open the door to offshore oil leases, which haven't been approved since the Santa Barbara oil spill of 1969.

Schwarzenegger said new taxes are “out of the question.” Nevertheless, if voters reject his budget package Tuesday, he will be seeking some higher fees.