Gov. Arnold Schwarzenegger proposed an $83.4-billion budget for the 2010-11 fiscal year that would freeze funding for Pleasanton and other school districts, further cut state workers' pay and reduce state aid for mental health care programs by an estimated 60 percent.
It would also continue--even accelerate--state take-aways of local property and gasoline sales taxes.
Along with a hoped-for $3.4 billion in help from Washington, and fund shifts and accounting changes, the governor said the new budget could close a budget gap now estimated at $19.1 billion. Analysts, though, have said the deficit is already well over $20 billion and climbing because of revenue shortfall in taxes being collected this spring.
The governor's statement at a news conference in Sacramento Friday follows:
Today I will be talking about the May Revise. I believe that the budget should be a reflection of what we in California value most and also it should be a representation of what our administration stands for, in good times or in bad. Now, we all know that we are managing through a global economic crisis, which is the worst since the Great Depression. But California should still be in a position to safeguard its most vulnerable citizens and take care of them, no matter what but we are not, because our budget system is broken. And I've talked about that since I came into office, that we must reform our budget system and we must reform our tax system and our pension system that is skyrocketing.
I now have no choice but to stand here today and to call for the elimination of some very important programs. If we had reform in place we would not be facing the "Sophie's Choice." It is clear that if for the last 10 years we would have had these budget reforms in place we would have $10 billion less in the budget deficit.
We know that every time we talk about reform the lawmakers don't have any interest to really do those reforms. The special interests shout that we're balancing the budget on the backs of the poor and at the same time they push the lawmakers to drain the budget when we have spikes in revenues and then scream for tax increases when we fall short on revenues. And the cycle goes on and on, just like this. This is what we call the "Budget Kabuki."
Now as you know, I presented my budget for this year in January and it solved our $19.9 billion deficit. But several things, of course, have changed in the last five months. First of all, I asked our legislators for $8.9 billion in solutions and after a special session of two and a half months they came up with $1.3 billion in solutions. Of course, by not dealing with the whole problem we lost time. And time is money. As a matter of fact, it cost the state an extra $2.8 billion by not having those solutions solved.
We also pushed to be reimbursed significant expenses by the federal government, expenses that they should be paying for and not the state of California. Now, we expected to get $6.9 billion; we didn't get that whole amount. But we were successful. We have received already $700 million and expect an additional $3.4 billion. And Ana and Kim Belshé can fill you in later on about where the negotiations are and how we are getting this money.
Then the third is court decisions. Court decisions have increased our deficit because federal judges have blocked many of the changes that we have made to Health and Human Services. So because these judges have prevented us from using a scalpel to go and trim some of those programs, we now have to use the ax and eliminate some of those programs.
And then there is, of course, T-Ridge, which is another $100 million.
Because of all of that, we are forced to make more severe cuts than I have proposed in January, in the January budget. As a matter of fact, like I said, in the January budget we had $8.9 billion worth of cuts to be made and now it is $12.4 billion.
California no longer has low-hanging fruits. As a matter of fact, we don't have any medium-hanging fruits. We also don't have any high-hanging fruits. We literally have to take the ladder away from the tree and shake the whole tree. We must make very difficult decisions:
Reduce Health and Human Services, including eliminating CalWORKs,
Eliminate 60 percent of funding for Community Mental Health,
Eliminate child care funding except for preschool and after-school programs,
Downsize some of our natural resource programs and the list goes on and on.
We are left with nothing but tough choices, as you can see.
But I want you to know, I will not sign a budget until we fix our broken systems. I will not sign a budget if we don't have pension reform and budget reform. For instance, talking about pensions, the cost of employee retirement benefits this year is $6.1 billion. That is more than what it will cost to keep CalWORKs, child care, mental health services and in-home supportive services, just to show you how much money we spend on those things.
We cannot go on like this any longer. Both Republicans and Democrats must get serious and take action. They must pass the budget and pass serious reforms. I support the legislators in their plan to move forward with their own budget process. I have made it very clear to everyone that my doors are open, that we always are willing to work with them in every step of the way in order to get this done.
And there's no reason why they can't present a budget to me by June 15th, so that I can sign the budget by June 30th, before the new fiscal year begins. Now, I think it is very important and it is very critical that we get the budget done on time.
I believe our lawmakers will do the right thing and they will solve the problem which has plagued our state for decades. It is time that we are putting the people of California -- we are not putting the people of California on this roller-coaster ride. Continuously, vulnerable citizens are being put on that roller-coaster ride where one day we have the revenues and the next day we don't. It is time we learned from our history and from our mistakes that were made so that it never, ever happens again.
We live in the best state in the best country in the world, there are no two ways about it. Californians deserve a better system. So let's commit to get this done, Democrats and Republicans alike and I can promise you that I will do everything that I can in order to get this problem solved.
QUESTIONS/ANSWERS AFTER THE PRESENTATION:
QUESTION: If I could ask you just a broad question to begin with, you said at the beginning of your presentation that a budget reflects the values and I believe probably of the state but specifically of you, maybe in this particular case. Could you talk about those values? Because there are going to be people right outside this door who say your values are more about businesses, corporate tax breaks, things like that, than they are parts of the social safety net, which you proposing to cut.
GOVERNOR: My values are to have a budget system in place that works, to have a tax system in place that is fair and that works and is stable and to go and bring the economy back as quickly as possible and to create the jobs, which will create the extra revenues so that we can afford all of those programs, so it reflects our values. That is the important thing. What we have to do is, we have to fix what you see here. You see capital gains taxes going up, then they fall. Then they go up and then they fall. Then they go up again. So that's what I'm talking about the roller-coaster ride. We can avoid that. We do not have to be in the position that we are in today if we would have fixed the broken system.
But as I have said earlier -- and I'm not here to beat up on the legislature but the fact of the matter is, I have proposed that so many times. I have begged the legislature to act, to do budget reform, to do tax reform. The Tax Commission, the bipartisan Tax Commission came in last year in October. We still haven't heard and they didn't even touch the whole thing.
And we've got to go and reform our pension system, because we can't continue on to have the rise, like just in CalPERS, from $150 million to $3 billion over a period of 10 years. That is crowding out other programs.
So those are the things that need to be fixed. And we are in a situation, as I said, where we have seen the perfect storm. We were hit by everything. By, like I said, judges' decisions, by the federal government not paying up their bill, by an economic crisis, by shortfall of revenues, by the pension situation. All of those kinds of things we were hit with. And so we have not really passed the stress test. We know that our systems don't work, so let's fix those broken systems. That is the most important thing. That's where my value is
QUESTION: Every politician in Sacramento would say they are for more funding for higher education. But given that you're proposing the elimination of CalWORKs, food and rent for children and deciding to delay tax reductions for business, how can you justify that choice? How can you justify raising money for higher ed and increasing the funds?
GOVERNOR: Well, I think that our priorities, obviously, are to go and have as much funding as possible. But because of the economy being down and because of our failed budget system and tax system, we don't have enough revenues to be able to afford all those programs. So we had to make severe cuts. And as you know and you look at education, they have really experienced severe cuts in these last two years. And also in higher education the fees went up by 40 percent. So everyone across the board has been hit here in these last three years. And so, as I said, it is painful to make those cuts. It is painful for me and for, I think, our entire team and Cabinet Secretaries and everyone in the Capitol, that we have to create those eliminations of certain programs. But we are forced to do it.
And I see very clearly the faces behind those numbers. I know how many people are suffering out there and how painful this is going to be. But this is just -- it's not the only state that goes through these problems. There are other states that go through that -- not that it makes it easier for our state -- and other countries go through it.
You see what's happening in Greece, you see what's happening in Ireland, you see what's happening in Spain now. And everyone has to go and look at it and say we've got to go and come to the realization that we can't continue spending money and promise people things that we can't keep. That's all the revenues we have. Let's not forget, when you look at the baseline revenues this year, you will see its $76 billion. That's without the fund shifts and without the tax increases that we have started last year. So $76 billion was exactly the revenues that were, when I came into office in 2003. Now, the GDP then was $1.3 trillion. The GDP now is $1.85 trillion.
So look at that increase over the last few years. But not when it comes to our revenues. So there is something wrong with our system. This is what I'm trying to tell people. This is the evil. Now, there will be people screaming for more taxes; we've done that. We have done that last year, we've done the biggest tax increase. The way we create the extra revenues that we need so badly is by stimulating the economy, by creating jobs, getting people to work so they pay taxes and therefore we have more revenue.
So stimulating the economy, as I said in my State of the State. Maybe the deficit has changed but my goal from the State of the State address in January has not changed at all, which is let's stimulate the economy and let's create the jobs. That's the important thing.
QUESTION: You've been talking budget reform this time around. In the past you've proposed a rainy day fund and bringing out the Tax Commission. Can you define what you hope to get in negotiations with the legislature?
GOVERNOR: I hope they look at the tax reform and what the bipartisan commission has presented. And they have laid it out, they have studied this subject very carefully. And I made it very clear to the legislative leaders that I'm not interested in just sticking with that formula but that we should get together, we should study that and we should go and have reforms based on that, because we need more stable revenues.
We can't continue on like we have here, with the income tax and capital gains tax that shoots up and down. Over 50 percent of our revenues come from income and capital gains tax and that is very, very volatile. So as long as we don't fix that we can never promise the people certain things. And we should be able to go and look at the people and say, you will have from now on your increase of education funding every year. We should be able to go and say this to the state employees. We should be able to say this for the in-home services, for everybody, if we start creating a straight line based on inflation and population increase, then we will be safe and we will always see increases.
But if we see spikes in revenues and spend it all for ongoing programs and then promise, based on that, that this is what we're going to give you in the future, like with pensions in 1999. I mean, things were promised; that the stock market will be at 24,000, when in fact it's barely at 11,000. And that there will be investments that will bring in 8.5 percent and all of those kind of things. These are all crazy things that you can't promise. How can you guarantee those things? I mean, the pension system was fine but they had to go and change it. And now we can't pay for it.
Now all of a sudden we are paying, the taxpayers are paying $6.2 billion on pensions. And now CalPERS has just asked us to pay an additional $600 million because they fell short with their investments. So we have to fix those things. So what I want to get out of it is to reform the taxes. And let's have a rainy day fund, because remember, just alone if we would have a rainy day fund today at 12.5 percent of our annual budget, when it was $100 billion, it would have been $12.5 billion. We would have divided that up into four, because let's say there are four problem years. We would have had every year $3 billion and that would have been just enough to help our students in higher education a little bit. It would have been just enough to help so that we don't have to lay off that many teachers. It would have been just enough for law enforcement and enough for in-home services or some of those very important things.
That's why Arkansas -- President Clinton has talked about many times, "You guys are crazy not to have a system in place like we have, that when you have a drop in revenues you know exactly which programs you cut first and which are the programs that are way down that will barely ever be cut." That shows priorities, that that state has priorities. But we just couldn't get that done.
QUESTION: Governor, how serious are you about eliminating CalWORKs? You've proposed this once before, you did not eliminate it last time. Is this a starting negotiating point? And have you considered the impacts, cost shifts that this would push onto counties and local governments and loss of federal funds?
GOVERNOR: Absolutely. We have spoken to the cities, to the counties. We have reached out to everybody. We made it very clear, including law enforcement, people from health care, the education community. We have reached out to everyone to let everyone know. So this is not a surprise hit. It's not meant to be that, because in the end we have to solve the problems together. We all have to come together on this. And so, you know, there will be, you know, the counties and cities and they all will be suffering because of that.
But the bottom line is yes, we have proposed it last year and we negotiated and throughout the negotiations we then decided not to do it. I want to say also that last year -- I hope that this year we have the same kind of a collaboration between Democrats and Republicans as we had last year, because it was really remarkable of how both of the parties came together. And only because of that we were able to fix $60 billion in deficit. And this is why this Monday in Boston they will get the medal of Profile in Courage Award. Now, that comes from, as you know, the Kennedys and for two Republicans, to get it for them, the medal of Profile in Courage, is extraordinary. And there will be also the two Democratic leaders. But it is because they looked at the whole world, of who has really been courageous, to do things that they normally wouldn't do.
And that's what it takes. You've got to be very courageous, to go and sit down and to solve those problems that we have here. And you have to go beyond your party rhetoric and all of this. And that's where I am. You know, I'm looking forward to working with the Democrats on this, I'm looking forward to working with the Republicans, because it's really a major problem and the only way we can do that is by us coming together and thinking about what is best for the state of California. And, you know, my budget -- this is our version. Then they will get involved, the legislators and we all will be looking at each other's kind of way of looking at this whole thing.