Gov. Arnold Schwarzenegger signed a revised $85 billion budget Tuesday that he said contained "the good, the bad and the ugly," including additional cuts to child welfare programs, health care for the poor and AIDS prevention efforts.
Schwarzenegger used his line-item veto authority to save an additional $656 million that will let the state restore a reserve fund he said is needed for tough times. Democrats immediately questioned whether he had the authority to make some of the cuts.
The new budget should help the state's cash crisis. It remained unclear, however, how soon the state could stop issuing thousands of IOUs to vendors and contractors.
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.
"Those are ugly cuts and I'm the only one that is really responsible for those cuts because the Legislature left, they didn't want to make those cuts," he said after signing the budget in his office.
Senate President Pro Tem Darrell Steinberg, a Democrat who negotiated the original budget compromise with Schwarzenegger, immediately questioned the legality of many of the governor's vetoes.
"We will fight to restore every dollar of additional cuts to health and human services," Steinberg said in a written statement. "This is not the last word."
Schwarzenegger called the budget package aimed at balancing the state's budget through June 30, 2010, the toughest since he took office in 2003. Still, the Republican governor said the package included reforms he has long sought and forces government to live within its means.
He said additional cuts were needed to build a $500 million reserve fund after the state Assembly rejected about $1.1 billion in revenues from local transportation funding and by allowing new offshore oil drilling.
With much of state spending tied up by federal and constitutional requirements, the Schwarzenegger administration wants to ensure the state has a cash cushion in case of emergencies such as earthquakes and wildfires.
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.
The governor and lawmakers hope the revised spending plan will end California's cash crisis and let the state stop issuing IOUs. 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.
"It's not going to happen overnight, but they're going to work on it," Schwarzenegger said of Genest and the state treasurer and controller.
Genest warned Tuesday that even with the revised budget deal, California will need to borrow $8 billion to $10 billion to cover its cash needs this year, and the state is likely to face another $7 billion to $8 billion deficit in the 2010-11 fiscal year.
Matt Fabian, a bond analyst at Municipal Market Advisors, based in Concord, Mass., said California's plan was filled with accounting tricks and will likely do little to improve the state's poor credit rating.
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 the state's workers compensation insurance business for $1 billion, which the Legislature's nonpartisan analyst doubts could be done within the fiscal year.
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.
The package lawmakers agreed to included about $15 billion in spending cuts, as well as reforms that include tougher sanctions on CalWORKS recipients who don't meet work requirements. Also, in-home support workers will have to undergo background checks and have their fingerprints taken.
In earlier rounds of cuts, California reduced Medi-Cal reimbursement rates for health care providers and eliminated optional benefits such as dental and eye care for adult recipients.
With the vetoes announced Tuesday, the cut to California's state parks totals about $14 million. Genest said that will likely force as many as 100 of the state's 279 parks, beaches and attractions to close, although he cautioned that figure wasn't firm.
The additional cuts Schwarzenegger made Tuesday also include $37.5 million from the In-Home Supportive Services program, $50 million from the Early Start program to screen children for developmental disablities, and more than $6 million in cuts from programs for the aging.
For the first time since the recession began in late 2007, the state will reduce county funding for child protection and foster care services. Under the governor's cut to AIDS prevention and treatment, Genest said the state will continue to provide patients with drugs and monitor the spread of the disease.
