Schwarzenegger seeks cuts to resolve looming deficit

Borrowing $15 billion and cuts of $14 billion will help balance budget

January 07, 2004|By Vincent J. Schodolski | Vincent J. Schodolski,CHICAGO TRIBUNE

LOS ANGELES - Gov. Arnold Schwarzenegger offered a glimpse yesterday of his plan to help right California's foundering fiscal ship of state in his first annual address to the state legislature, raising the prospect of deep spending cuts in critical areas such as education and steeper fees for parks and other state-run attractions.

The governor delivered a 25-minutes address that rang with elements of an earlier California governor - Ronald Reagan. He spoke of not raising taxes, smaller government and reforms that would make the business climate in California more attractive.

The state, he said, does not have a budget crisis, but rather: "We have a spending crisis." But he said California could not tax its way out of the problem. "We have no choice but to cut spending."

Like governors across the nation, Schwarzenegger has seen signs of an improving economy, and he suggested the upturn would add an unexpected $2 billion to state tax revenues. But that pales in comparison to the $14 billion budget shortfall forecast for the current fiscal year and a projected $15 billion deficit for the fiscal year starting in July.

Arturo Perez, a fiscal analyst with the National Conference of State Legislatures, said that despite signs of an economic upturn, state officials around the country are nervous because high-paying jobs are not being created as in previous recoveries, meaning that revenue from income taxes is not rising.

"They are being cautious," Perez said of state officials.

Unlike the federal government, all 50 states require a balanced budget every year, meaning that in times of deficit, states have to enhancing revenue or reduce spending.

Schwarzenegger, who as a candidate for governor promised to do all he could to maintain the state's educational system, has reportedly reached an agreement with the state's teachers unions that would allow him to take $2 billion out of the education budget for the 2004 fiscal year.

In return, the governor promised not to try to change a constitutional amendment approved recently that guarantees a steadily increasing revenue stream to the state's educational budget from the general fund in the budget.

Reductions in state spending on the California public college and university system are expected to translate into higher tuition and fees for students.

But the biggest unresolved problem for the new Republican governor is his quest to gain voter approval for a $15 billion bond issue that would be used to cover the projected gap in the current fiscal year.

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