ARNOLD METTLE HITS THE NETTLE.

Byline: David M. Drucker Staff Writer

SACRAMENTO - Gov. Arnold Schwarzenegger, fresh from delivering on promises to get rid of the tripled car tax and driver's licenses for illegal immigrants, faces his toughest test yet in persuading Democrats to buy his plan to get the state's finances in order.

With a Friday deadline to get his $15 billion borrowing plan on the March ballot, Schwarzenegger plans to barnstorm through several key Democratic districts with a direct appeal to voters to pressure their representatives.

Many Democrats strongly oppose the governor's mix of borrowing, spending cuts and a spending cap, while others object only to details, and Schwarzenegger has left room for compromise. Failure to reach a deal with the governor would escalate the political stakes in advance of next year's election.

``There's a longer-term picture here, which has to do with whether the governor will get cooperation with his recovery plan, ... which allows us to keep providing services for people,'' said the governor's spokesman Rob Stutzman.

Although the party is divided, key Democrats have indicated a willingness to work out a compromise.

``I think it is a good idea conceptually to have a cap on spending so that we don't have runaway spending and (so) that we have a very, very significant reserve,'' Assembly Budget Committee Chairwoman Jenny Oropeza, D-Carson, told reporters last week after a presentation by the administration.

Added Assembly Appropriations Committee Chairman Darrell Steinberg, D-Sacramento: ``I do think, and I believe this reluctantly, that some borrowing is a reality given the magnitude of the problem.''

The Legislature and former Gov. Gray Davis approved $12.6 billion in borrowing in response to the $30 billion deficit that plagued this year's budget. But the courts threw out one of those measures - for $1.9 billion in bonds - and a pending legal decision threatens a second one - for $10.7 billion.

Standing by his campaign promise to avoid tax increases and ensuring that the state can pay its bills come June, Schwarzenegger wants to replace the challenged bond issues with one for up to $15 billion and protect it from a legal challenge by having voters approve it in March. Payment of the bonds would come out of the general fund and would not directly increase taxes.

The governor wants to couple the bond issue with a voter-approved spending cap to secure a good interest rate and assure bond buyers Sacramento won't get into financial trouble again.

Deadline for legislative approval is Friday to put the measure on the ballot.

``We're not under any illusion as to how difficult this task is going to be under a short period of time,'' Schwarzenegger's finance director, Donna Arduin, told the Assembly Budget Committee last week.

Since taking office two weeks ago, Schwarzenegger has moved quickly to honor his campaign promises.

He rolled back Davis' tripling of vehicle registration fees on his first day in office, and he called the Legislature into special session to address the state budget, reform the workers' compensation insurance system and repeal Senate Bill 60, the law written by Sen. Gilbert Cedillo, D-Los Angeles, that would allow illegal immigrants to obtain driver's licenses.

Schwarzenegger achieved political victory last Monday when Cedillo, after a personal plea from the governor, reversed course on SB 60 and backed its repeal in the Senate, which dumped the law in a 33-0 vote.

The Assembly is expected to meet today, follow suit and let Schwarzenegger to meet another campaign commitment.

The budget proposal will be tougher to get passed.

``(The spending cap proposal) is frustrating the will of the people, because the will of the people has to do with the fact that they have elected the Legislature as their representatives. We have an autocracy here rather than a democracy,'' Sen. Jack Scott, D-Pasadena, said last week during a meeting of the Budget and Fiscal Review Committee.

Scott's comments reflected a widespread feeling among Democrats. Very few rejected the concept of a cap. But many were concerned that, as proposed, it gives too much power to the governor and upsets the checks and balances between the executive and legislative branches.

The cap has been proposed in the form of an amendment to the state Constitution, which also would:

--Bar the state in fiscal year 2004-05 from spending more general-fund revenue than it takes in. In all future years, spending growth would be limited to the combined increase of population and the cost of living, also defined as the growth in per-capita personal income. Special funds, such as the pool of money reserved strictly for spending on transportation projects, would be exempt from the cap.

--Route all general-fund revenues in excess of those needed for capped expenditures into a budget-stabilization or ``rainy day'' fund. On a two- thirds vote, the Legislature could spend rainy-day money on tax rebates, deficit-reduction payments, emergencies declared by California's governor and budget balancing in the event of an unexpected loss of revenue, as typically happens in an economic downturn.

Democrats also criticized the rainy-day fund because they feared it could threaten education funding.

Proposition 98 requires that a hefty portion of all general-fund revenues be spent on education. But money funneled into the rainy-day fund would escape that requirement until it is transferred into the general fund for any of the approved uses.

The only Republican attack on the spending-cap proposal came from the right, with Sen. Tom McClintock of Thousand Oaks accusing the administration of making it too easy to skirt.

David M. Drucker, [phone]

david.drucker(at)dailybulletin.com