ARNOLD PLANS NO NEW TAXES NUNEZ: CUTS TO POOR 'OVER MY DEAD BODY'.

Byline: Harrison Sheppard Sacramento Bureau

SACRAMENTO - Gov. Arnold Schwarzenegger proposed a $125.6 billion budget Tuesday that builds on a surging economy to increase spending on education and transportation, cuts funding for some welfare and health programs and does not increase taxes.

The 2006-07 spending plan represents a 7 percent jump from the current year. But the state continues to maintain a long-term structural deficit, which is even projected to increase in 2007-08.

``This budget continues California on the path of fiscal responsibility and economic recovery,'' Schwarzenegger said.

The budget will help the state's public universities postpone a planned fee hike this fall. It also adds $4.3 billion for public education in kindergarten through community college, and it protects Proposition 42 funds for roads and highways - earmarked gasoline sales tax revenue that the state has raided in the past for other purposes.

The governor's budget includes $97.9 billion in the state general fund, an 8 percent increase from the current year, and other money from special sources such as the federal government and dedicated taxes.

Democratic legislative leaders gave generally positive marks to the focus of increases, but said they would strongly resist cuts to programs for the poor, disabled and elderly.

Assembly Speaker Fabian Nunez, D-Los Angeles, said the state has balanced the budget on the backs of the poor and elderly in the past two years and would do so again only ``over my dead body.''

``Assembly Democrats, this time around, are not going to stand idly by while the poor take it in the shorts once again,'' he said.

One way the state could restore money to those programs, Nunez suggested, is by asking voters for permission to delay the implementation of after-school programs funded through Proposition 49, saving $428 million.

Schwarzenegger, who helped author and pass Proposition 49 in 2002 while still a private citizen, said increases in state revenue triggered funding of the programs this year for the first time, as spelled out in the measure itself.

The governor's proposal includes a $1.2 billion increase for health and welfare services but trims spending in several individual programs. The net funding increase of 4.5 percent will cover only caseload growth and cost increases, Schwarzenegger said.

The cuts in individual programs total about $333 million, including $199 million from the California Work Opportunity and Responsibility to Kids welfare program, which helps parents pay basic living expenses while they transition to jobs, and $40 million from funds to help counties administer CalWORKS.

The governor calls for a cut of $12.5 million in a cash-assistance program for immigrants and avoids $48 million in cost-of-living increases for low-income elderly, blind and disabled Californians by freezing benefits in a federally aided program.

State Treasurer Phil Angelides, a frequent critic of Schwarzenegger who is seeking the Democratic gubernatorial nomination, criticized the budget for continuing the deficit and for cutting funds to the most vulnerable.

``He said he would be the 'people's governor,' but even at this time he can't find it in him to provide the blind, disabled and aged what they are owed,'' Angelides said. ``He's pocketing the federal money targeted to give them a cost-of-living increase.''

Angelides supports tax increases to help balance the budget, including closing corporate tax loopholes and increasing income taxes on Californians making more than $300,000 a year.

Schwarzenegger also faced criticism from his right flank.

State Sen. Tom McClintock, R-Thousand Oaks, a leading fiscal conservative, criticized the governor for again proposing to spend more than the state takes in.

Schwarzenegger proposes spending $97.9 billion but analysts expect $91.5 billion in general-fund revenue, resulting in a $6.4 billion deficit. The difference would be made up by approximately $7 billion that is expected to be left over from the current year because revenues are higher than previously anticipated.

``The budget is seriously out of balance, and the budget gap is widening,'' McClintock said.

The legislative analyst said the state needs to spend $95 billion to meet its legal obligations, according to McClintock, who wants spending reduced at least to that level. He said Proposition 49 should not be triggered, and that automatic increases should be suspended in spending formulas.

Schwarzenegger said he could have eliminated the structural deficit if not for four policy decisions made since he took office: lowering the car tax after he was first elected; passing a ballot measure to protect funding for local cities and counties; fully funding Proposition 42 transportation funds; and repaying $1.7 billion owed to schools.

Schwarzenegger also said he once again plans to seek a change in the California Constitution to authorize the governor to make midyear cuts without legislative approval. He has unsuccessfully sought such authority in the past.

Nunez suggested he could support the midyear-cut proposal if the governor would support an amendment to allow budgets to be passed by the Legislature with a simple majority rather than the current two-thirds. Such a move would essentially disenfranchise minority Republicans on the one major issue on which they have significant leverage every year, GOP leaders say.

Schwarzenegger's proposed budget will go through a series of legislative hearings in coming months, and he will then release a revised version in May. The constitutional deadline for enacting a budget is June 30, but that date is often missed because of the two-thirds requirement. Budget stalemates can extend weeks or months into the summer.

Los Angeles County transportation officials were thrilled to see the governor propose not only full funding for transportation, but also early repayment of highway funds that have been raided in past years to cover state general-fund shortfalls.

``It's fantastic, '' said David Yale, director of regional planning for the Los Angeles County Metropolitan Transportation Authority. ``It's great news for transportation, and we want to work with the governor in getting this through the Legislature because it gets projects that are ready to go moving now, not years from now.''

The governor's proposal could mean as much as $500 million across Los Angeles County for freeway car-pool lanes, mass transit and other projects - many of which have been on hold as transportation dollars dried up.

Staff Writers Steve Geissinger and Lisa Mascaro contributed to this report.

Harrison Sheppard, [phone]

harrison.sheppard(at)dailynews.com

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Chart:

Proposed 2006-07 budget

SOURCE: 2006-07 Governor's Budget general fund budget summary