Schwarzenegger to Slash Funding from City, County Budgets

San Jose Mercury News, Calif

Ann E. Marimow, Dion Nissenbaum and Kate Folmar

January 8, 2004

SACRAMENTO - Three weeks after taking bold action to protect local government from steep budget cuts, Gov. Arnold Schwarzenegger Friday will propose trimming more than $1 billion from city and county budgets when he unveils his first spending plan to tackle the state's $15 billion deficit.

Underscoring the longstanding struggle between Sacramento and local governments, cities and counties will be asked to pay about $1.3 billion more in local property tax funds that flow to public schools, according to sources who have been briefed by the administration.

Pat Leary, legislative representative for the California State Association of Counties, called Schwarzenegger's plan perplexing.

"Why would you go out of your way to restore vehicle license fee money to local governments, say they shouldn't pay the price and then take away property tax money that pays for exactly the same thing?" said Leary, who hadn't seen the proposal. "It just doesn't compute."

Last month, big city mayors and county sheriffs stood on stage to applaud Schwarzenegger for guaranteeing $2.7 billion they stood to lose when he lowered the car tax on his first day in office. In an unusual show of power, Republican Schwarzenegger bypassed the Democrat-controlled Legislature to ensure that checks would be cut for local governments.

San Jose Budget director Larry Lisenbee said the city already loses more than $19 million annually through a property tax shift that began during the last recession over a decade ago, when the Legislature shifted more of the school funding burden to cities and counties.

"It's very disappointing the new governor is going to an old tactic of stealing revenue from local governments to balance his budget," Lisenbee said.

A spokesman for the governor's finance department declined to discuss specifics. H.D. Palmer said the administration would explain in great detail how the overall budget would benefit local government when Schwarzenegger presents his entire budget package Friday.

In a news conference Thursday, the governor announced a compromise with educators that was portrayed as a bright spot in a budget that is expected to inflict deep cuts all around.

Saying that "our children will always have the first call on our treasury," Schwarzenegger announced schools will receive $2 billion more in funding in the next school year. He made the announcement with various education groups by his side in the library of Sutter Middle School in east Sacramento.

The deal that the governor struck with educators is a novel one: rather than take the almost $4 billion they are owed under California's constitutional school funding guarantee, schools can have half now and be spared further cuts in the coming school year. The $2 billion they forgo will be restored starting in the 2005-06 school year.

To close the budget gap, Schwarzenegger also wants to scale back benefits paid to state employees through California's costly public retirement system - a change that would have to be negotiated with unions. A similar plan to create a less-expensive program for new employees was adopted in the late 1980's, but discontinued in flush times in the 1990s.

Steve Trossman, a spokesman for the California State Employees Association, said the union would oppose a two-tiered system that treats some employees differently than others.

"State employees have a fair pension system that allows them to have a full career serving Californians and have a decent retirement," he said.

In addition, the governor anticipates about $300 million in federal funds and about $500 million in new revenue from Indian tribes that operate casinos and want to offer more slot machines. Graduate students and out-of-state undergraduate students at public universities would see their fees increase by 40 percent and 20 percent, respectively. In-state students would face a 10 percent increase.

Assemblyman Ray Haynes, R-Temecula, declined to discuss the specific budget proposal, but said local governments have no reason to complain now about any cuts.

"With all due respect, I don't have a whole lot of sympathy for a city manager that makes $200,000 to $250,000 complaining that he doesn't have enough money to pay the bills," said Haynes. "They were fattening themselves up on the same exact hog as the state government was."

Schwarzenegger's deal on school funding has been criticized by some Legislators - who ultimately will have to approve the budget blueprint - because it leaves other groups vulnerable. But Schwarzenegger said that schools, by not fighting for all that they were owed, helped him spare worse cuts elsewhere.

Schwarzenegger is calling the change "re-basing" - or tweaking the base school funding level. However, several insiders said it would amount to suspension of the state's school funding guarantee, or Proposition 98 - a word that people are studiously avoiding because it is heresy in many education circles.

The governor would not discuss higher education fees at the news conference.

However, people familiar with the budget said fees at all levels of the state's public higher-education system would go up under his proposal.

The average California State University fee is now $2,572 a year, including campus-based fees that range from $316 to $1,462. The current University of California undergraduate fee is $4,984 a year, and climbs to average of $5,530 annually when campus fees are included. Both UC and CSU systemwide fees have grown by 40 percent over the past year, but still are among the lowest in the nation.

Graduate students would take a harder hit. At UC, graduates pay a systemwide fee of $5,200 annually, climbing to an average of $6,843 when campus fees are added. But students in professional schools such as law, medicine and business pay substantially more. For example, it now costs a minimum of $16,833 a year to attend a UC law school. At CSU, grad students pay an average of $2,256 a year without campus fees.

Community college fees, which rose from $11 to $18 a unit this fall, would still be the lowest in the nation even if they increase to $26.

Still, some students say they are already reeling from "sticker shock."

"Considering last year's 40 percent increase in one year, I don't think it should be permissible," said Anu Joshi, a senior at UC-Berkeley. "It is really going to hit the middle class the hardest because many don't qualify for financial aid and won't be able to cover the dramatic increases."

The California Student Aid Commission, which manages the state's financial aid program, expects the governor to take steps to curtail growth of Cal Grant awards, which have doubled since 1999-2000, said spokeswoman Carole Solov.

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(Mercury News Staff Writers Aaron C. Davis, Mark Gladstone and Becky Bartindale contributed to this report.)

(c) 2004, San Jose Mercury News (San Jose, Calif.). Distributed by Knight Ridder/Tribune News Service