ARNOLD TO RUSH BUDGET MONTH-EARLY PROPOSAL MAY EASE FISCAL CRISIS.

Byline: David M. Drucker Sacramento Bureau

SACRAMENTO - To head off a cash crisis and regain credibility with Wall Street, Gov. Arnold Schwarzenegger is developing a strategy to push the Legislature to approve a new budget by the end of May - a month earlier than the constitution requires.

Faced with the threat of continued budget gridlock and the fact that the Legislature has missed the June 30 constitutional deadline in 11 of the past 17 years, the governor will have a tough fight trying to speed up the process.

Schwarzenegger is looking to accelerate the release of the revised version of his January budget proposal - which California governors have traditionally done in mid-May - to April to give lawmakers the opportunity adopt the 2004-05 budget by May or early June at the latest.

The move would seek to show Wall Street that California is headed toward fiscal stability, as well as pressure legislators to act on time, even if they disagree with various aspects of the governor's budget.

``No final decision has been made, but we are looking at what you would have to do on an operational basis to prepare a revised budget before the second week in May,'' said H.D. Palmer, a spokesman for the Republican governor's Finance Department.

Assembly Speaker Fabian Nunez, a Los Angeles Democrat who assumed the leadership post Monday, used his inaugural address to call the Assembly Budget Committee into session immediately to review the spending proposal unveiled by Schwarzenegger on Jan. 9. He said he would welcome any effort that aids the approval of an on-time ``responsible'' plan.

``I don't think we need to get too far ahead of ourselves but, certainly, if we can fast-forward the process, I'm all for that,'' Nunez said.

Traditionally, California's governor releases a budget proposal in early January, with legislators waiting until he updates it in mid-May - just six weeks before the signing deadline - to begin serious deliberations. Reaching a timely agreement becomes even less likely in years like this one, which finds Sacramento facing a projected $14 billion deficit that must be closed with politically difficult spending cuts or tax increases.

During a recall campaign appearance in Sacramento last summer, aides to then-candidate Schwarzenegger said his plans for addressing the impasse that typically grips the Capitol during budget season might include ending the practice of releasing a revised budget in mid-May. At the governor's appearance before the Sacramento Press Club on Jan. 27, he stated his intention to do just that.

``There is this kind of a habit here, as you know: 'Let's wait with the budget until May.' Well, I want to have not only the midyear adjustments and everything done, made, but I also want to have the budget for 2004 and 2005 done in May,'' Schwarzenegger said, when asked how he plans to avoid the legislative stagnation that resulted during the last three years under former Gov. Gray Davis.

The Democrat-controlled Legislature has ignored Schwarzenegger's call for $1.9 billion in cuts to the current budget year and signaled its unwillingness to approve a 2004-05 spending plan that would cut billions from health and welfare services for the poor without raising taxes.

Republicans - as they have the past three years - are in the minority but can block the Democrats by using the two-thirds requirement for tax increases and budget approval. They say they will not vote for any spending plan that raises taxes.

Schwarzenegger said he hopes to prevent a stalemate from again holding up the budget until well past the June 30 deadline. Financial analysts say a balanced budget signed on time would go far toward lifting the state's credit rating from near junk-bond status.

Moving up the ``May revise'' budget plan is seen as logistically feasible.

``Fundamentally, this is not about numbers; it's about political values,'' said Tim Hodson, executive director of the Center for California Studies at Cal State Sacramento. ``If there's no willingness to engage in debate and democratic compromise, it could be a very long summer.''

The governor's revised budget makes determinations based on projections of state tax and other revenues, how many residents will enroll in taxpayer-subsidized services, the influx of federal funds, and other figures and economic indicators considered more accurate than those relied upon for the January proposal.

The administration is reviewing how best to accelerate the release date - and exploring how far it could be moved up - without sacrificing the accuracy of the projections or harming the Legislature's ability to make sound policy decisions, Palmer said.

Another factor that would determine whether Schwarzenegger moves ahead with this plan could be the March 2 election, when voters decide the fate of Propositions 57 and 58, the governor's fiscal recovery plan that would sell $15 billion in bonds to refinance the state's debt and enact a constitutional spending limit, respectively.

If the plan fails, Sacramento will run about $8 billion short of cash to cover the $14 billion in short-term cash loans coming due in early June. The only way for the state to maintain control over the 2004-05 budget at that point would be to have a budget in place by the time the loans are due.

With no budget in place, investment bankers would step in and advance the state another loan to cover the cash shortage. But, as a non-negotiable condition for doing so, they would dictate spending for the 2004-05 fiscal year in a manner that shortchanges many state programs.

``We are on track to run out of money in (121) days,'' Democratic Controller Steve Westly said late last week.

David M. Drucker, [phone]

david.drucker(at)dailybulletin.com