California budget cuts deep into healthcare, schools

The long-awaited compromise won't raise taxes but its service cuts are unlikely to make it popular.

Deep cuts in government services including healthcare, prisons, and local government assistance are the likely results of the budget deal struck between Gov. Arnold Schwarzenegger and lawmakers after negotiations all day Monday. The California legislature will vote as early as Thursday on the deal to close the state’s $26.3 billion budget deficit.

The state had resorted to using IOUs to pay its contractors in the last few weeks of the budget impasse, and its credit rating – which affects the ability to borrow money – fell to the lowest in state history.

Monday’s compromise will cut spending by $15 billion, including $6 billion from schools, $3 billion from colleges, and $1.2 billion from prisons. Schools are to be repaid $11 billion if and when the state’s economy turns around.

Medi-Cal, the state’s health program for the poor, will be cut by $1.3 billion. And the state will probably take about $4 billion from local governments.

“This is a budget that will have no tax increases, a budget that is cutting spending,” said Governor Schwarzenegger in announcing the plan late Monday. He added, “We’re also very happy that in this budget we make government more efficient.”

Lawmakers closed a $42.5 billion deficit in February, but state income continued to plummet with unemployment that is now at 11.5 percent.

California residents won’t welcome the cuts in services. Teachers and university professors have been demonstrating statewide, and state workers forced to take furlough have been running a TV ad campaign against the practice.

“This will not be a popular deal,” says Jessica Levinson, director of political reform for the Center for Governmental Studies. “Prison guards are crying foul because spending cuts will lead to the early release of many prisoners. Local governments are understandably upset about the burden they will be asked to shoulder.”

The plan also raises $4 billion in part by accelerating personal and corporate income tax withholdings and increasing income tax withholding schedules by 10 percent. It includes Schwarzenegger’s proposal to expand oil drilling off the Santa Barbara coast for a revenue of $1.8 billion.

Some analysts say Schwarzenegger was emboldened to forge ahead with draconian cuts after voters rejected his initiatives to reform state spending May 19.

“[Schwarzenegger] promised ‘action, action, action’ but the state political system guaranteed ‘stalemate, stalemate, stalemate’ ” says Jack Pitney, political scientist at Claremont McKenna College. “He surely could have done more to curb spending but even the most tightfisted governor would still face a mess in 2009.”

The state is being forced to face up to its spending problems without borrowing, as it has done several times in the past, say others.

“California has papered over its problems always hoping that a better day would be around the corner,” says Robert Stern, president of the Center for Governmental Studies in Los Angeles. “With the dotcom boom and the real estate boom, the state could avoid addressing its fundamental structural budget problems. With the booms over, the house of cards has collapsed.”