REVENUES PUMPED UP IN BUDGET ARNOLD TO RELEASE REVISED BLUEPRINT.

Byline: David M. Drucker Sacramento Bureau

SACRAMENTO - Gov. Arnold Schwarzenegger today will unveil a revised, 2004-05 budget proposal that estimates higher state revenues and controls the cost of taxpayer-funded health care for the poor to help close a $15 billion deficit.

Schwarzenegger is upping his projection of ongoing state tax revenues by $1 billion over what he figured in January and is elaborating on plans to streamline the management of state assets. He expects to sell surplus property worth about $50 million, and is also reducing Medi-Cal spending, a key component of his overall blueprint to solve the shortfall.

``The governor is going to submit a revised budget that will continue to put California on a path toward structural balance,'' said his chief budget spokesman, H.D. Palmer.

Schwarzenegger will issue his revised budget - an update of the plan he proposed in January for the fiscal year beginning July 1 - at a 3 p.m. news conference.

The fiscal package includes key agreements he has already negotiated with the affected parties, among them a deal he announced Wednesday to redirect $2.6 billion in municipal funds to state coffers in exchange for his support for a constitutional amendment preventing such actions in the future.

Local government leaders joined Schwarzenegger in suburban Sacramento to thank him for working with them and agreeing to the plan. If the deal receives legislative and voter approval it would, beginning in 2006-07, outlaw the state from raising vehicle fees from their current levels and prohibit the raiding of local car, property and sales-tax monies used to fund police, fire departments and road repairs.

``Thank you, Gov. Schwarzenegger, for your leadership on this very, very difficult issue,'' Los Angeles City Council President Alex Padilla said during the ceremony outside Elk Grove City Hall. ``This package achieves the No. 1 goal for cities throughout the state: constitutional protection of local revenues.''

The governor said he wants state government to live within its means and not think of taxpayers as an endless source of revenue.

``This is the kind of mentality that I want to slowly get into this Capitol,'' Schwarzenegger said. ``You look in your hand, and say, OK, I have this amount of dollars, now let's see how I can distribute this money that I have to those programs that are out there.' Rather than, let's spend the money on those programs, and then turn and say, Wait a minute, where do we get the money from?''

The deal - offering California's municipalities long-term financial protection in return for short-term pain - came on the heels of a similar agreement Schwarzenegger announced Tuesday with public universities, and one announced earlier with K-12 education.

The fanfare surrounding these compacts, which require the approval of the Democrat-controlled Legislature, could elude the Republican governor as he works to overhaul Medi-Cal, which constitutes almost a third of California's nearly $100 billion general-fund budget and offers among the most generous, inexpensive benefits in the nation.

Schwarzenegger is likely to push for a system that functions more like private medical insurance, possibly similar to Oregon's state health insurance program, said sources familiar with the issue.

It would divide Medi-Cal recipients into at least two categories: ``mandatory'' and ``optional.'' The mandatory population, considered extremely poor, would continue to receive services much as it does now, with many benefits, even optional services like acupuncture and dental care requiring minimal to zero co-payments.

The optional population, probably constituting current recipients who are not poor enough to qualify for welfare, would be charged increased co-payments and monthly premiums.

Anger over Schwarzenegger's pending budget revision has already started. On Wednesday afternoon about 50 protesters jammed a Capitol hallway outside the office of administration Finance Director Donna Arduin.

David M. Drucker, [phone]

david.drucker(at)dailybulletin.com

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(color) Gov. Arnold Schwarzenegger will release his revised budget this afternoon.

Rich Pedroncelli/Associated Press