EXPERTS SAY NEW BUDGET RISKY ASSUMPTIONS, ONE-TIME FIXES FACE CHALLENGE.

Byline: Harrison Sheppard Sacramento Bureau

SACRAMENTO - Gov. Arnold Schwarzenegger's proposed budget for 2004-05 contains gimmicks, one-time fixes and risky assumptions that fail to solve the state's long-term problems, according to critics, and they may be where he faces the biggest battle in the months ahead.

And whether he prevails depends on an improving economy and on the actor-turned-politician's salesmanship ability.

He has to sell voters on a $15 billion debt consolidation bond on the March ballot. He has to sell Indian casinos on striking new deals that will lead to them paying the state $500 million to the state next year. And he has to sell Democratic legislators on allowing the billions of dollars in cuts to health and human services and education he has proposed when they want tax increases.

``I think he is taking a gamble and he's betting that the economy will be robust enough to warrant it,'' said Barbara O'Connor, director of Institute for the Study of Politics and the Media at California State University, Sacramento. ``That of course is not new. It's happened before.

``He runs a risk because to date he's been very credible about keeping his promises and he has been very high-profile on what the promises are. So he really is betting the farm that his math works. Or that he negotiates something with the Legislature that will make the math work.''

When Schwarzenegger ran for governor in the recall election, he blasted the current state budget as containing ``more special effects than in 'Terminator 3.'''

But some Democrats and political analysts say many of the steps that Schwarzenegger took to balance a $14 billion deficit were no different than the one-time fixes of the past that failed to solve the state's long-term problems - the gimmicks he has denounced.

``It just amazes me that when these things were suggested last year, we were the Antichrist,'' said Assembly Speaker Herb Wesson, D-Los Angeles. ``Now that they're suggested this year, it's OK.''

Added Sen. Wes Chesbro, D-Santa Rosa, the chairman of the Senate budget committee: ``It is a remarkably conventional budget. It has some significant differences, but on balance this governor faces the same limited choices that the last governor did.''

And state Treasurer Phil Angelides has produced a list of at least $8 billion in steps that he said are one-time measures that don't solve the state's long-term problems.

Administration officials said the budget does in fact differ from past practices in many respects. Department of Finance spokesman H.D. Palmer said for one, rather than deferring certain payments to save money but place the burden on future years, the budget makes outright cuts, in areas such as transportation, local government and education, that will not have to be repaid in the future.

Another example, he said, is the administration's estimate of pension savings. The governor is asking state employees to contribute another 1 percent to the pension system, but he is also tying it to a reform of the pension system, Palmer said.

``He is not bound by the traditions and institutional processes that have guided how budgets have been put together in the past,'' Palmer said. ``He's coming in with a fresh, outside approach and a fundamental commitment to change the way things are done in Sacramento.''

Also, rather than simply cut everything, Schwarzenegger is looking to give, for example, managers within the corrections systems more responsibility for controlling their own costs; as well as looking to encourage greater use of community colleges rather than the university systems to save costs while still providing higher education.

Among the one-time fixes in his budget are taking $1.3 billion from local governments; cutting $1 billion from transportation; and cutting $2 billion from education.

Several elements in the budget include assumptions that involve a degree of risk and guessing about the future:

--He is counting on the economy continuing to improve, generating an additional $2.9 billion in tax revenue.

--He is relying on voters passing his $15 billion bond measure in March. If they don't, he has warned of ``painful cuts'' that will follow.

--He is assuming he can negotiate new compacts with Indian casinos to produce $500 million in revenue. That assumption about Indian casinos is one of the examples that critics say may not come to pass, showing a degree of uncertainty in his budget numbers.

``It's optimistic,'' said I. Nelson Rose, a Whittier College professor and expert on Indian gaming. ``My estimate, and this is real off-the-cuff, is that it's more around $200 million in additional revenue. Obviously the biggest problem is getting the tribes to agree, but part of the problem is also that it takes time to build a casino.''

Indian casinos currently take in $3 billion to $5 billion a year, according to the administration, but pay only about $140 million to the state in funds used to help non-gaming tribes and infrastructure.

The current existing compacts cannot be renegotiated unless the tribes agree, which they are unlikely to do without a major economic incentive, according to gaming experts. That leaves Schwarzenegger to negotiate with those tribes looking to build new casinos or expand existing ones.

Schwarzenegger's most optimistic hope is to get 25 percent of new revenue, which means the tribes will have to earn an additional $2 billion - in other words, build enough new casinos, add slot machines to existing ones and increase their customer base enough to increase revenue by 50 percent in 18 months.

Indian gaming experts say Schwarzenegger is more likely to get between 10 percent and 20 percent revenue deals with the tribes, in which case the casinos would have to grow even more rapidly.

The tribes have indicated a willingness to negotiate.

Attorney Howard Dickstein, who represents several of the larger gaming tribes, said he believes the $500 million is a realistic figure.

``I think a number of tribes will step up to the plate and do what they can to crunch the numbers and see how close they can get,'' Dickstein said. ``Particularly in the context of the governor's indication that he would consider a significant expansion in the number of slot machines.''

Schwarzenegger recently appointed Daniel Kolkey, a San Francisco attorney, as his Indian casino negotiator and talks are expected to start later this month.

Palmer said the $500 million was the administration's best estimate before officials have been able to begin discussions with the tribes, and he said the number could change by the governor's revised May budget.

The timeline for the state budget gives the Legislature until June 15 to approve a deal, which the governor is supposed to sign by June 30, the last day of the current fiscal year.

But in the last 20 years, the Legislature and governor have approved budgets by the deadline only six times; of those late budgets, the latest came when former Gov. Gray Davis signed the 2002-03 budget on Sept. 5, 2002.

And during the fight over the 2003-04 budget, the Legislature gridlocked, but Davis bore the brunt of public concern because he was facing the recall election at the time. He signed that budget on Aug. 2.

Still, the administration remains optimistic this year.

``He wants action,'' Palmer said. ``He and this administration are going to be working with the Legislature in what we hope will be a cooperative, collaborative manner to get this moving forward. Everybody knows what the stakes are this year - and they're pretty high.''

Harrison Sheppard, [phone]

harrison.sheppard(at)dailynews.com