Deficit will darken Schwarzenegger's final months - San Jose Mercury News

By JULIET WILLIAMS Associated Press Writer

LOS ANGELES—Gov. Arnold Schwarzenegger's election six years ago in California's unprecedented recall election was followed by unlimited promise that the state's famously dysfunctional finances would finally be fixed.

Today the Republican governor faces a financial crisis even worse than the one he inherited, after voters overwhelmingly rejected a slate of budget-balancing measures in Tuesday's special election.

Figuring out how to fill a $21.3 billion budget deficit—nearly a quarter of California's general fund—is likely to occupy most of his remaining time in office, foiling any chance he had left to build the type of legacy he desires.

"The budget mess will overshadow everything else the governor does until he leaves office. The problem is so big that he can forget about major policy innovations," said Jack Pitney, a political science professor at Claremont McKenna College in Southern California. "He was hoping to revolutionize state government. He'll be lucky to avoid a complete collapse."

It's the latest blow for a celebrity governor who came to Sacramento promising blockbuster-sized reforms. He vowed to end California's roller coaster finances by running the state like a business and cutting through the political gridlock.

His promises to tear up the state's credit cards and "end the crazy deficit spending" seem like distant memories—and now impossible to accomplish before he leaves office in January 2011.

Schwarzenegger has succeeded in borrowing billions of dollars for infrastructure projects and pushing through redistricting reform, but his major achievements may end there.

A combination of political backbiting and financial reality already forced him to delay or cast aside many of his sweeping policy initiatives. The state's shaky finances will make rebuilding California's water system a longshot priority. Health care and education reforms have been defeated or scrapped.

Meanwhile, the recession is gnawing at the state's image of resilience. Unemployment has climbed to a record 11 percent, home foreclosures continue apace, the commercial real estate market has cratered and much of the construction industry has ground to a halt.

With only a third of Californians approving of his job performance, Schwarzenegger has few bargaining tools remaining as he seeks to address the very same problems that compelled him to seek office six years ago.

The governor said Wednesday that he understands the message from the special election results: Californians want elected officials to solve the problems, not constantly turn to them.

"Don't to come to us for extra help. That was the message," Schwarzenegger said Wednesday after a meeting with Health and Human Services Secretary Kathleen Sebelius in Washington, D.C. "And you know something? I appreciate that when you hear that from the people. It gives us a chance to go and adjust, and say 'OK, we went in the wrong direction. Now let's go in the right direction and let's go do what the people want.'"

Schwarzenegger was scheduled to meet with legislative leaders Wednesday to begin discussing ways to bridge the budget gap.

Within weeks, the state's budget crisis will transform from an abstraction in the minds of most Californians to painful reality.

The governor has proposed shortening the school year by seven days, eliminating health care for tens of thousands of low-income children, laying off up to 5,000 state employees and taking $2 billion from local governments. The shift of local money is likely to translate into reduced police and firefighting services, shortened library hours and local parks becoming overgrown and strewn with trash.

"To take money out of local government suggests what the state does is more important than police, fire, after-school programs and library programs," said Chris McKenzie, executive director of the League of California Cities. "The voters have made it very clear they want the state to stand on its own two feet."
Tens of thousands of teachers also face the prospect of layoffs, and school officials were bracing for what they called unprecedented cuts.

That is not the California Schwarzenegger hoped to be shaping during his final year-and-a-half in office. He already spent most of the last two years tied up in contentious budget negotiations, and the budget package he signed in February already raised taxes by $12.8 billion and cut $15 billion from state programs.

He has said he won't raise taxes again, setting the stage for clashes with state employee unions and other groups determined to protect their interests.

In campaigning for the ballot propositions before Tuesday's election, Schwarzenegger tried to weave his own narrative in the face of likely defeat. He told audiences that Tuesday's special election was not about his time in office or the legacy he hopes to leave, but rather about California's future.

That future now appears darker, at least in the short term. The scope of the crisis will challenge lawmakers to meet their rarely met June 15 to pass a balanced budget, creating the potential for another prolonged budget fight.

Schwarzenegger did get some good news on Wednesday. The federal government informed him that California will remain eligible for $8 billion in Medicaid funds despite complaints from unions that previous pay cuts to home healthcare workers violated the terms of the federal stimulus bill.

Schwarzenegger had appealed to administration officials not to jeopardize California's share of the economic stimulus funding because of the cuts to state programs lawmakers are being forced to make.

Kenneth Burt, political director of the California Federation of Teachers, which opposed parts of the ballot package, said there is still a role for Schwarzenegger during this critical time for the state—if he can reclaim his role as bipartisan peacemaker.

"He's obviously a lame duck, but he still has a role to play in bringing together the legislative leaders," he said.