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Governor pledges to spare

education from cuts
Wyatt Buchanan,Marisa Lagos, Chronicle Sacramento
Bureau
Thursday, January 7, 2010

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(01-07) 04:00 PST Sacramento - --

Gov. Arnold Schwarzenegger pledged to spare public schools, colleges and universities from the
budget ax this year and proposed privatizing at least some of the state's prisons in his final State of
the State address.

In a 27-minute speech, Schwarzenegger told a joint gathering of the Assembly and Senate that
although the state faces a nearly $20 billion deficit, he was drawing a line with education.

"Because our future economic well-being is so dependent upon education, I will protect education
funding in this budget. And we can no longer afford to cut higher education either," the governor
said.

Schwarzenegger also called for a $500 million job-creation program, major changes in budgeting
laws and in pension benefits for public employees, a push for more federal dollars and a
constitutional amendment to guarantee that more money is spent on higher education than
prisons.

No talk of deficit

But while setting an ambitious agenda, the governor did not talk about what probably will
dominate his remaining time in office - deciding what state services will be scaled back or
eliminated to make up the budget deficit. Schwarzenegger said the deficit is $19.9 billion, slightly
less than $20.7 billion deficit predicted by the Legislative Analyst's Office.

That bleak news comes Friday, when the governor will unveil his spending plan.

He called the state's budget and tax systems cruel, saying they force lawmakers to choose between
poor and sick children when cutting services, and called for changes.

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His nominee for lieutenant governor, Sen. Abel Maldonado, R-Santa Maria (Santa Barbara
County), said after the speech that social services indeed would take the hit.

"There's going to be cuts. They're going to come from health and human services," Maldonado said.
He added that the cuts would be deeper if the state is unable to collect $6.3 billion from the federal
government that state leaders believe California is owed.

Democrats applauded the governor's pledge not to cut education, but afterward leaders expressed
skepticism about whether that is possible given the likely trade-offs. Education spending made up
$45.5 billion of $84.5 billion in general fund spending this year.

"We don't support the notion that we're going to have a firewall on education and eliminate
everything else. And, of course, what I'm concerned about is health and human services and the
safety net, because safety net programs are on life support as it is," said Assembly Speaker Karen
Bass, D-Baldwin Vista (Los Angeles County).

She and state Senate President Pro Tem Darrell Steinberg , D-Sacramento, said they also have
concerns about a constitutional amendment guaranteeing higher education spending because they
said it would be a prime example of ballot-box budgeting that limits lawmakers' control over
spending.

"We need to begin setting the stage now to do no more harm, and begin thinking about how we
reinvest in California," Steinberg said.

Private prisons

The governor said privatizing prisons would save "billions of dollars a year" that could be used for
higher education. While that idea was praised by education leaders and advocates across the state,
it appears to have little support in the Legislature as Democratic leaders roundly rejected it.

Assemblywoman Noreen Evans, D-Santa Rosa, said the idea simply does not make sense.

"He has a really good way of setting things up and saying 'We have no choice here, and this is what
we must do,' and it's just not true," Evans said.

Sen. Mark Leno, D-San Francisco, chairman of the Public Safety Committee, said the governor's
"rhetoric does not match his record."

"The prison crisis has become a state of emergency on his watch," Leno said. "Our disinvestment in
higher education and our ever greater investment in prisons has happened under his watch."

'Jobs, jobs, jobs'

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The governor also said a priority for the year would be "jobs, jobs, jobs," which won praise from
both parties, but more so from Republicans as he included easing some construction regulations - a
move they long have sought.

He proposed a package of bills that he said would train up to 140,000 workers and create or retain
up to 100,000 jobs. That would be accomplished by providing reimbursement to employers for
training new workers or retraining employees for new jobs. Employers could recoup up to $4,400
for each worker.

Schwarzenegger proposed paying for the $500 million program by borrowing from the
Unemployment Compensation Disability Fund, a state fund created to compensate those
unemployed because of sickness or injury.

The governor said the fund has enough money to cover claims and provide the loan.

He also proposed exempting some construction projects from legal challenges once they have
completed an environmental review and called for a limit on punitive damages in lawsuits.

The governor proposed extending the popular tax credit for first-time home buyers, and allowing
the credit to apply to purchases of previously owned homes.

Assembly Minority Leader Sam Blakeslee, R-San Luis Obispo, praised the governor's jobs proposal,
noting that he is the author of a key piece of that plan - a bill that would exempt zero-emission
vehicle manufacturers like Tesla Motors from sales tax on the purchase of new manufacturing
equipment.

"We were very happy to see his emphasis on jobs - we can't afford to lose the Nummis," he said,
referring to the Fremont automobile plant that is due to close in March. "These are huge employers
in the state, and oftentimes a very small amount of seed money can make a huge difference to
whether an employer leaves."

Priorities

Gov. Arnold Schwarzenegger outlined these goals for 2010:

Higher education and prisons: Schwarzenegger wants to prohibit the state from spending
more on prisons than on higher education, in part by allowing private prisons. He wants 10 percent
of the general fund to be spent on the University of California and California State University
systems by 2014-15, when 7 percent would be spent on prisons. The changes would be made by a
constitutional amendment, which requires voter approval, that would allow the state to contract
with private firms to build, operate and manage prisons. That means new and existing prisons
could be managed by private companies.

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Jobs and economic growth: Schwarzenegger wants to spend $500 million to create 100,000
jobs and train 140,000 people for better-paying work. He also wants to expand a $10,000
home-buyer tax credit, eliminate sales taxes on the purchase of green technology manufacturing
equipment and make it easier for developers to get permits for construction projects.

Tax and budget reform: The governor wants to reduce most personal income taxes and
eliminate the corporation tax, minimum franchise tax and sales tax (except on gas and diesel fuels),
and collect tax on business net receipts, with the exception of very small businesses. He wants the
budget to require only a simple majority vote, not the two-thirds majority it now needs. (Tax
increases would still need two-thirds approval.) He would require any new state program or agency
that costs more than $25 million a year to pay for itself and prohibit the Legislature from being
paid if it doesn't pass the budget on time.

Pension reform: The governor said that pension costs for government employees have increased
by 2,000 percent over the past decade while revenues rose 24 percent. The fund's $3 billion annual
cost will eventually rise to $10 billion, he said.

Help for veterans: Schwarzenegger announced a statewide initiative aimed at connecting

returning veterans with jobs, housing, mental and physical health care, federal benefits and other
support. It would establish nine regional centers and create the volunteer California Veteran Corps
to serve as liaisons between the centers and combat veterans.

- Marisa Lagos

Excerpts from gov. arnold schwarzenegger's state of the state address

On the state's broken tax and budget system

"The current tax and budget system is cruel ... it is forcing us to make a Sophie's Choice amongst
our obligations. Which child do we cut? Is it the poor one or is it the sick one? Is it the uneducated
one or is it the one with special needs?"

On the pig and the pony

"As you might guess, the Schwarzenegger household is something of a menagerie - an Austrian
bodybuilder, a TV journalist, four children, a dog, a normal goldfish, a hamster and so forth - and
in recent years we added a miniature pony and a pot-bellied pig. Now, it's not unusual for me to
look up from working on the budget or something and to find the pig and the pony standing right
there in front of me and staring at me."

On prisons and education

"Spending 45 percent more on prisons than universities is no way to proceed into the future. What

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does it say about our state? What does it say about any state that focuses more on prison uniforms
than on caps and gowns?"

On the health care bills in Congress

"You've heard of the bridge to nowhere. Well, this is health care to nowhere. California's
congressional delegation should either vote against this bill that is a disaster for California or get in
there and fight for the same sweetheart deal that Sen. Nelson of Nebraska got for the Cornhusker
state. Because that senator got for the Cornhusker state the corn and we got the husk."

On seeking more federal dollars

"Federal funds have to be part of our budget solution because the federal government is part of our
budget problem. When President Clinton was in office, California got back 94 cents on the dollar
from the federal government. Today we only get 78 cents back. But in the meantime, Texas gets 94
cents, Pennsylvania gets $1.07, Alaska, with all its oil, gets back $1.84 for every dollar. And guess
what New Mexico gets? $2.03. ... We are not looking for a federal bailout, just for federal fairness."

On the budget crisis

"The budget crisis is our Katrina. We knew it was coming. We've known it for years. And yet
Sacramento would not reinforce the economic levees."

E-mail the writers at wbuchanan@sfchronicle.com and mlagos@sfchronicle.com.

http://sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/01/07/MN0I1BEDAN.DTL

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