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Arnold Unveils Austerity Budget

Gov. Arnold Schwarzenegger unveiled a $99.1 billion budget plan Friday, as he proposed cutting billions of dollars from public health and welfare programs while shifting another $1.3 billion in property taxes from local government to pay state expenses.

Schwarzenegger did not include any new taxes in the plan, but he did ask to impose higher fees on users of state parks and on college students.

"For the past five years, the politicians have made a mess of California's budget," Schwarzenegger said. "Now it's time to clean it up."

The biggest hits are aimed at the state's Medi-Cal program, which would lose close to $900 million next year. The state's program to bring welfare recipients into the work force is also targeted with a $800 million cut.

The loss of property tax money to local governments is a shift from Schwarzenegger's previous pledge to protect the governments that rely on that money. While proposing the $1.3 billion shift, the governor also proposes to maintain a $4 billion replacement for the car tax money.

Schwarzenegger's budget is also built on a rosy economic picture next year, projecting $2.9 billion in additional tax revenue to be available in 2004-2005.

Getting support for the spending plan won't be easy, as Schwarzenegger has surprised and angered local government officials who thought he would protect their sources of state revenue. Also, Democrats control both houses of the Legislature and have said the burden of the state's fiscal crisis shouldn't fall on the poor and disabled.

Local officials said they haven't studied the whole budget, but they're disappointed by the proposed property tax shift.

"Shifting property taxes has all sorts of negative concerns associated with it," said Pat Leary of the California State Association of Counties. "We need to know what else is piled on top of it."

The hit to public health includes caps on enrollments for the state's health insurance program for the poor and elderly. The governor also called for the elimination of some medical benefits for the poor and disabled.

University students would see higher fees, with undergraduates paying 10 percent more; there would be a 40 percent increase on graduate students. The plan also lowers the amount of financial aid available to middle-income students.

Community college students are being asked to pay an $8 per unit increase — from $18 per unit to $26. Students there who already have bachelor degrees would pay $50 per unit.

Some social service advocates say tax increases should be used instead of spending cuts to solve the state's problems.

"I expect that there will still be hard hits on health programs that will hurt children and working families very hard," said Catherine Teare, spokeswoman for the Oakland-based advocacy group, Children Now. "I just don't see how this all gets done."

Indeed, according to estimates updated this week, the state will have a deficit of nearly $27 billion by June 2005 — created by an existing deficit of $12.6 billion run up over the past three years and a projected shortfall of $14 billion by the June 30, 2005.

Schwarzenegger and the Legislature have put a $15 billion bond issue on the March that would pay off the existing deficit, but the $14 billion projected deficit for next year remains.

A key underpinning of his plan to balance the state's budget without raising taxes had been backed by educators, who agreed to accept $2 billion less next year than they are owed.

But even if legislators approve Schwarzenegger's budget plan, which will be revised in May, it will mean little if voters don't approve the $15 billion bond deal in March. So far, administration officials said, early polls indicate voters don't like the measure and may not pass it.

If voters reject the bonds, most observers believe the resulting budget hole will force Schwarzenegger to reconsider his no-tax pledge.

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