ARNOLD SIGNS BUDGET, AT LAST STATE SPENDING PLAN IS 31 DAYS LATE.

Byline: David M. Drucker Sacramento Bureau

Capping a ``summer slamfest'' he hoped to avoid, Gov. Arnold Schwarzenegger signed the 2004-05 state budget 31 days late Saturday amid criticism he has broken his promise to end wasteful spending and truly balance the books.

Wearing a dark gray suit, lime-green tie and cowboy boots embroidered with the governor's official seal, Schwarzenegger signed the $105.4 billion budget in the Capitol rotunda as members of the public, the press, his staff and officials like Los Angeles Mayor James Hahn looked on.

``This is a fair and responsible budget. It is balanced and it does not raise taxes,'' said Schwarzenegger, who used his line-item veto to eliminate $116 million in spending approved by the Legislature. ``Most importantly, the budget keeps California on track for economic recovery.''

Leading Democrats responded immediately, blaming Schwarzenegger for a budget deficit the nonpartisan Legislative Analyst's Office has said could hit $7 billion when the 2005-06 fiscal year begins next July.

Treasurer Phil Angelides and Lt. Gov. Cruz Bustamante blasted the Republican governor for a budget that may close this year's projected $15 billion shortfall, but relies on significant borrowing and one-time accounting gimmicks while sparing the state's affluent residents from tax increases in favor of raising tuition on college students.

``Gov. Schwarzenegger has broken his word to the people of California to end this state's crazy deficit spending and balance the budget,'' said Angelides, who is expected to challenge Schwarzenegger for governor in 2006 if he seeks re-election. ``He calls his budget a win for the people, but it is not a win for the people who dream of sending their kids to college.''

Bustamante, Schwarzenegger's main challenger in last October's recall election, released a statement encouraging the governor to adopt his campaign proposal to raise income and tobacco taxes as part of the 2005-06 budget. ``The plan may not have proved to be smart politics, but time and this budget have proved that it was the best policy.''

The administration dismissed the criticism, noting that general fund expenditures were in line to increase almost $15 billion this year - from $75.5 billion to $90.1 billion - had solutions proposed by the governor not been adopted. General-fund spending is pegged at $78.7 billion this year, with total state spending at $105.4 billion when bond and special-fund expenditures are accounted for.

``We are undeniably changing the course of this state's fiscal policy with this budget,'' said H.D. Palmer, Schwarzenegger's chief budget spokesman.

Among some of the features of the governor's first budget:

--$977,000 in funding to combat West Nile virus.

--$600,000 in funding to streamline the granting of film permits.

--$530,000 in funding to lobby in Washington against closing military bases.

--$23.1 million in funding for responding to potential terrorist attacks.

--$109.9 million in funding for suburban and rural school districts to bring them on par with those in urban areas.

Schwarzenegger cut $10.6 billion in spending from last year's levels, but he also borrowed to maintain spending for health and human services for the poor without raising taxes and to support the $4 billion car-tax cut he implemented last November.

He used more than $2 billion of the $15 billion in bonds authorized by voters via Proposition 57, more than $900 million from the issuance of pension-obligation bonds to avoid making a similar payment to the state employee retirement system, and $1.1 billion by borrowing from gas taxes intended for transportation projects.

The governor also closed the deficit by using $1.3 billion in local property and sales taxes that would have otherwise funded police protection and other vital local services.

Schwarzenegger did not need municipal support for this move - which includes the taking of another $1.3 billion next year. But he worked with city and county officials to put a proposed constitutional amendment on the November ballot - Proposition 1A - that if passed by voters will prevent future state raids on local revenues.

``It was a sacrifice we thought was worth it in exchange for protection against further raids from state government,'' Hahn said. ``Everybody had to give up a little to get this budget.''

David M. Drucker, [phone]

david.drucker(at)dailybulletin.com

FISCAL COMPROMISES

Gov. Arnold Schwarzenegger signed a $105.4 billion budget Saturday characterized by loans, accounting gimmicks and one-time solutions that eventually will have to be paid. The budget:

--Uses $2.7 billion in Proposition 57 bond money

--Suspends Proposition 98 funding guarantees for schools, saving $2 billion

--Borrows $1 billion to pay pension obligations

--Suspends Proposition 42 funding for transportation, saving $1.2 billion

--Assumes $450 million from punitive damage awards will go to the state

--Suspends teacher tax credit for two years, saving $200 million annually

--Commits to $1.3 billion funding guarantees for cities and counties that begin in two years

--Promises a funding increase to state universities in 2005-06

After the monthlong budget impasse, the Democrats got:

--$33 million to lift enrollment cap at state universities

--$74 million to provide a cost-of-living increase for welfare recipients

--$130 million to maintain state's share of wages paid to home health care workers

The administration and Republicans got:

--No new taxes

--Revision of state law that allows workers to sue employers over labor code violations

--Repeal of fire protection fees that would have generated $53 million

--Repeal of timber harvest fees that would have generated $10 million

--Maintains most of a tax exemption for buyers of luxury yachts, motor homes and airplanes

--Eliminates Legislature's authority to shift local property taxes for state purposes

Sources: Legislative Analyst's Office; Assembly Budget Committee; Republican Senate Caucus.

CAPTION(S):

photo, box

Photo:

Officials look on as Gov. Arnold Schwarzenegger signs the $105.4 billion budget - 31 days late.

Steve Yeater/Associated Press

Box:

FISCAL COMPROMISES (see text)