HOW WILL ARNOLD FUND PROMISES? EXPANDING HEALTH COVERAGE, REFORMING PRISONS MAY MEAN OTHER CUTS.

Byline: MIKE ZAPLER MediaNews Sacramento Bureau

SACRAMENTO -- A beaming Arnold Schwarzenegger began his final four years as governor Friday with a grand inauguration and an ambitious second-term agenda.

But ambitious means expensive and this week the governor will begin to reveal how he plans to pay for a massive expansion of health care to millions of Californians, as well as billions of dollars for new prisons and other infrastructure.

Money could be tight. California has yet to shake the perennial budget deficits that have dogged Schwarzenegger throughout his time in office. The shortfall is expected to be $5.5 billion -- significantly smaller than when Schwarzenegger first took office but large enough, analysts say, to force hard decisions.

Complicating matters is the governor's ``no-new-taxes'' campaign pledge, and a Republican caucus vowing a more aggressive stance against spending.

``I don't see how it can be done without one or two events: making rather serious reductions in spending, or raising taxes,'' said Larry Gerston, a political science professor at San Jose State University. ``There's no math that will allow it to happen.''

Tensions may begin to surface this week. On Monday, Schwarzenegger will unveil his health reform plan. On Tuesday, he will lay out his vision for the year in his State of the State address. Then, on Wednesday, he will release his proposed budget.

A senior finance aide to Schwarzenegger said the governor's spending plan provides money for an ambitious agenda, reduces the state's ongoing deficit and accomplishes both without raising taxes.

``We think it's a budget that sets clear priorities that can garner bipartisan support,'' said H.D. Palmer, deputy director of the governor's finance department.

But advocates for the poor are bracing for the worst. Health and social service programs are typically easy targets in tight budget times because, unlike K-12 education, funding isn't guaranteed by law and there are few well-heeled groups to press their cause.

Health and social services make up about 30 percent of the state's $100 billion-plus operating budget.

Grants for two major welfare programs -- CalWorks and SSI -- have been largely frozen at the same level the past two years, said Michael Herald of the Western Center on Law and Poverty.

That means many poor and disabled people in the state have been getting the same amount of money, even as the costs of living increase.

Herald said he hopes legislative Democrats will resist deep cuts to social programs to balance the budget or pay for the health insurance plan.

``I wonder where the money's going to come from to expand health, do a major expansion of prisons and balance the budget,'' Herald said. ``I think there's an inherent contradiction and the governor's going to have to come to grips with his priorities.''

An $8 billion tax windfall last spring allowed Schwarzenegger to settle a nasty political battle with the California Teachers Association and boost spending on other programs.

But state finance experts say Schwarzenegger probably won't be so fortunate this year.

``We expect this year is going to be a lot tougher,'' said Brad Williams, the director of fiscal forecasting for the nonpartisan Legislative Analyst's Office.

mzapler(at)mercurynews.com

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