BUDGET SQUEEZED SOME PROPOSED CUTS INCLUDE DIVERTING $1.1 BILLION FROM PUBLIC TRANSIT; TRANSPORTATION OFFICIALS SAY L.A. COUNTY COULD STAND TO LOSE $260 MILLION DEFICIT ELIMINATION CLAIMED WITH NEW SPENDING PLAN.

Byline: HARRISON SHEPPARD Sacramento Bureau

SACRAMENTO -- Tightening the state's purse strings Wednesday, Gov. Arnold Schwarzenegger unveiled a $143 billion budget that eliminates California's operating deficit for the first time in years but cuts into everything from welfare programs to public transit.

The 2007-08 plan raises spending just 1 percent while not increasing taxes and paying state debt back early. But the plan also relies on 7 percent revenue growth amid a slowing economy and hikes college tuition fees.

``This is a responsible budget,'' Schwarzenegger said. ``It's a prudent and realistic budget, a budget that lives within our means, but still provides crucial services for the people.''

Democrats said while they don't see large areas of disagreement, they oppose some of the cuts to social services and questioned some of the governor's deficit calculations. Still, leaders of both parties remained optimistic the budget could be passed on time in June.

The plan is expected to have a significant impact in Los Angeles County, where transportation officials said the governor's move to divert about $1.1 billion statewide from public transit to other programs could lead to either fare hikes or service reductions.

Metropolitan Transportation Authority officials said the county could lose about $260 million, equivalent to almost 10 percent of its budget.

``We're extremely concerned about the impacts of the governor's proposed budget,'' said Michael Turner, the MTA's manager of state governmental affairs. ``Upon initial review, it appears the budget will take precious dollars away from transportation services that now serve hundreds of thousands of students and the disabled.''

Welfare reform

Meanwhile, advocates for the poor said Schwarzenegger's welfare reform proposal would hurt low-income families and children. He is proposing cutting about $465 million from the CalWorks program, partially to get more families off welfare after five years and into the work force.

Nancy Berlin, director of The California Partnership, a coalition of community groups fighting poverty, said the cuts would eliminate CalWorks cost-of-living adjustments to 454,000 families statewide, including 151,000 families in L.A. County.

Other cuts affecting 40,000 families statewide would cut cash assistance to children.

``We are concerned the governor is targeting children in his cuts to welfare,'' Berlin said. ``All of the major cuts that he has indicated would remove children from cash assistance.''

But business groups praised the governor for his fiscal discipline.

``Under the circumstances, the governor's proposed budget appears to be a fair starting point,'' said Brendan Huffman, president of the Valley Industry and Commerce Association. ``Hopefully, the `post-partisan' spirit will continue through the budget process and result in a common-sense spending plan.''

Billions in spending

Los Angeles Unified School District board President Marlene Canter said she was pleased the governor continued to increase education funding, though she was concerned about some federal funds he took from education to help pay for CalWorks child care.

She and new LAUSD Superintendent David Brewer plan to visit Sacramento later this month to lobby on budget priorities and other issues, and she is hoping to arrange a meeting with the governor.

``Overall I'm satisfied and I'm looking forward to meeting with him and other legislators to talk about our plans,'' Canter said.

Schwarzenegger's proposed 2007-08 budget consists of just over $143 billion in total spending, broken down into $103 billion from the general fund, $27.7 billion in special funds and $12.6 billion in bond funds.

The budget includes:

Early repayment of $1.6 billion to the Economic Recovery Bonds that voters approved in Schwarzenegger's first year to help the budget deficit. The bonds are on track to be fully repaid by 2009 -- 14 years ahead of schedule.

A reserve fund of $2.1 billion.

Funds to implement new programs, including $193 million for Jessica's Law, a state law to protect children against sexual predators; $36 million for a new global warming law; and $150 million to upgrade prison health care.

But some disputed the governor's claim that the budget eliminated the state operating deficit. The plan uses recent bond borrowing to pay for maintenance to state parks and levees that previously had been funded out of the state's annual budget.

And state Sen. Tom McClintock, R-Thousand Oaks, disputed the governor's claim that the deficit had been eliminated, saying when debt payments are included, the state is actually spending $1.9 billion more than it is taking in.

Ignoring those payments is denying reality, he said.

``Their contention is that debt payments should be deducted from the budget deficit -- which will be a great relief to my wife to know we can now cease placing our mortgage payments and credit card payments on the expense side of our family ledger,'' he joked.

Democrats also noted that while the governor is counting on $500 million in revenue from new compacts with Indian gaming tribes, the Legislature rejected those compacts last year.

Democrats said the compacts would have to be rewritten before they could consider approving them this year.

An on-time budget

Assembly Speaker Fabian Nunez, D-Los Angeles, said he was optimistic a deal on the budget could be reached in time for it to be signed into law by the June 30 deadline.

Overall, he said, the governor is ``on the right track'' but he is concerned about the welfare and transportation cuts.

``Clearly there are some things for us to like in this budget and there are some things for Democrats not to like in this budget,'' NuIllegal 'X-value' for character STYLs voided here ez said.

Assemblyman Roger Niello, R-Sacramento, vice chairman of the Assembly Budget Committee, said he is also hopeful a deal can be worked out on time this year in the spirit of the bipartisan collaboration Schwarzenegger is promoting.

``We're looking forward to a truly collaborative process this year, with the Democrats and with the governor. And that we as Republicans -- even for those things that have a simple majority requirement -- have a significant voice at the table,'' he said. ``That's the spirit that's going to be expressed, and we're anxiously looking forward to that.''

Staff Writer Troy Anderson contributed to this report.

harrison.sheppard(at)dailynews.com

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Winners & Losers

TEACHERS: Tax credit would be eliminated.

COLLEGE TUITION: UC and CSU students would face

7 percent to 10 percent hikes.

PUBLIC TRANSIT: Cuts would take 10 percent of MTA's budget and could lead to fare hikes or service cuts.

HEALTH: $2 million more for public health, safety programs.

WELFARE: $500 million cut out of welfare recipients' funds.

CAPTION(S):

5 photos, 2 boxes

Photo:

(1 -- color) Health/Human services

(2 -- color) Prisons/correction

(3 -- color) Transportation

(4 -- color) State government

(5 -- color) Education

Box:

(1) BUDGET SQUEEZED

(2) Winners & Losers (see text)

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