ARNOLD TO CUT FROM SCHOOLS, MEDI-CAL.

Byline: David M. Drucker Sacramento Bureau

SACRAMENTO - Californians finally will see the pain Gov. Arnold Schwarzenegger promised is necessary to fix a $14 billion deficit today as he unveils a state budget without higher taxes but with billions of dollars' worth of across-the-board cuts and fee increases.

``When you face a crisis like this, it means that everyone has to tighten their belt. Everyone has to make certain sacrifices,'' Schwarzenegger said Thursday as he announced a negotiated deal with the education lobby to cut $2 billion from public schools.

The Republican governor's budget will propose a 10 percent reduction in funds for Medi-Cal, the state-subsidized health care program for the poor, and seek to limit enrollment in Healthy Families, a medical insurance service aimed at uninsured children, according to sources familiar with the plan.

Community college students will be asked to share the pain by paying $26 per unit, an $8 increase.

Cities and counties also will feel the impact. Schwarzenegger proposes an ongoing $1.3 billion hit to local coffers that would come from redevelopment agencies and other funds, and would divert $1 billion in transportation money to the general fund, a move reminiscent of one proposed last year by ousted Gov. Gray Davis.

``These are all inherited problems that I'm facing. And we have to deal with it,'' Schwarzenegger said.

Democratic leaders in the Legislature who had not been briefed on the spending plan said they were withholding their judgment until after today's scheduled 11 a.m. news conference, which - to accommodate the high media interest in Schwarzenegger - was moved from the Capitol briefing room to the secretary of state's auditorium, which is larger.

Senate President Pro Tem John Burton, D-San Francisco, said there would be a clash if Schwarzenegger aims to reduce programs that serve the poor, as he is with his proposal to nix cost-of-living increases for welfare recipients.

``If the state's got a problem, telling the poorest of our society they're the ones who have to bail out the state is kind of counterintuitive to me - and should be to most decent people,'' Burton said.

Assembly Speaker-elect Fabian Nunez, D-Los Angeles, said he wants a budget that makes sense fiscally and socially.

``Some of us don't believe that we ought to cut social programs,'' Nunez said. ``Now we know tough cuts are going to have to be made, but the question we ought to ask ourselves is are those cuts fiscally responsible and are they socially responsible?''

In a display of political acumen, Schwarzenegger - instead of simply proposing a cut to public schools - reached out to education leaders and negotiated the deal announced Thursday with the backing of the education lobby. The move is likely to blunt some of the resistance expected from the Democrat-controlled Legislature.

Amid fanfare at a Sacramento middle school, the governor was joined by leaders of a union, the California Teachers Association, and other education officials to announce that K-12 schools and community colleges would still receive the minimum funding due them under voter-approved Proposition 98, but $2 billion less than they might otherwise have received.

Public education faces no more cuts in the current budget year, which ends June 30, and the original funding level is to be restored by fiscal year 2007-08.

The $2 billion lost in this agreement - which still requires legislative approval - will never be recovered, but education leaders nonetheless applauded Schwarzenegger for the deal.

``The way he involved us in this budget proposal is a first, and we appreciate it,'' CTA President Barbara Kerr said.

Sources said the governor plans to negotiate with local governments the same way he did with the education lobby in hopes that they will ultimately support his plan to take $1.3 billion from them in perpetuity. But his cuts to health care and welfare programs used by the poor are likely to meet very strong resistance both from Democrats and a variety of interest groups and labor unions.

Medi-Cal reimbursement rates for hospitals are not targeted for a cut, but doctors who treat such patients are. The administration's likely response to criticism of the health care reduction proposals will be, according to a source, that ``a bankrupt California can't serve anyone'' so these cuts must be made now.

That message is unlikely to sway Democrats or the groups representing those who depend on social services funds. As Burton and other leading Democrats have said for weeks, they support higher income taxes on the wealthy and other tax hikes, instead of these cuts.

``We're very disappointed (with the proposed Medi-Cal cuts),'' California Medical Association Associate Director Heather Campbell said. ``We're disappointed that it's the same as Gov. Davis' proposal from last year.''

In line with his promise in the recall campaign, Schwarzenegger's budget calls for no tax increases. His revenue projections for the 2004-05 budget are only slightly higher than those formulated by the nonpartisan Legislative Analyst's Office, sources said.

But the governor will call for fee increases, including those on entry into state parks and for students at University of California and California State University campuses. Also, he is looking for $350 million from the federal government, and additional revenue from Indian tribes that operate Las Vegas-style casinos.

Staff Writer Harrison Sheppard contributed to this report.

David M. Drucker, [phone]

David.Drucker(at)dailybulletin.com