A deal -- at last

Gov. Arnold Schwarzenegger and legislative leaders agreed Monday to erase California's $26 billion deficit by cutting broadly across state government, shifting costs into the future and taking funds from cities and counties.

State leaders believe their budget plan is good enough to end the state's issuance of IOUs, a practice California is using for only the second time since the Great Depression.

Standing with legislative leaders in front of his Capitol office Monday evening, Schwarzenegger called the deal "a really great, great accomplishment," and heralded the fact that the $88 billion general fund budget includes no tax increases.

Legislative leaders spoke in sober tones about producing a plan with $15.5 billion in cuts they know will face scorn from millions of Californians who depend on state government for services, education or employment, as well as from local officials whose budgets were already teetering. Both Democrats and Republicans blamed the ongoing recession for the choices they made.

"This is, of course, one of the most difficult economic times to face our state since the Great Depression," said Assembly Republican Leader Sam Blakeslee, R-San Luis Obispo. "So none of these were easy choices. All of them entailed difficult options for the state."

A floor vote is expected Thursday, and leaders plan to brief their caucuses by phone Tuesday. While leaders expressed confidence in Monday's handshake agreement, the last "Big Five" deal in February met resistance once it reached the Senate floor.

The budget includes $6 billion in new cuts to K-14 schools, as well as $3 billion in cuts to higher education, some of which colleges can offset with federal stimulus dollars.

Leaders used a retroactive $1.6 billion cut to avoid suspending the state's Proposition 98 guarantee for school funding. They also committed the state to paying an extra $9.8 billion to schools when the economy rebounds as compensation for 2008-09 budget cuts, in addition to $1.5 billion owed for 2007-08.

The budget agreement also has about $850 million in cuts to three major safety-net programs – In-Home Supportive Services, CalWORKs and Healthy Families low-cost medical insurance.

"For Democrats, I have to tell you that many of the cuts we had to make … in another time we would have thought were unthinkable," said Assembly Speaker Karen Bass, D-Los Angeles, who said that because of the recession she felt they "didn't have a choice."

Democrats said they protected CalWORKs and Healthy Families from being eviscerated by the governor, who originally had proposed eliminating the programs. Steinberg said that "frankly, we had one hand tied behind our back" because Republicans would not support tax hikes.

Schwarzenegger and Republican leaders, however, highlighted permanent increases in sanctions designed to force more welfare recipients into work that take effect in July 2011. Those include more interviews and reviews of recipients, as well as benefit reductions if parents don't meet new requirements.

Leaders agreed to require fingerprinting of In-Home Supportive Services providers and recipients, excluding amputees. Providers would undergo background checks. The governor suggested it was part of "cutting the waste, fraud and abuse in some of the programs."

But advocates said leaders should have raised taxes on tobacco and oil production to preserve benefits.

"This is the biggest step back from protecting and investing in vulnerable Californians in a generation," said Frank Mecca, executive director of the California Welfare Directors Association.

Leaders agreed to cut $1.2 billion in the state's corrections budget, but they would not discuss how they would realize those savings until after they meet with their caucuses.

The state will take about $4.7 billion from cities, counties and special districts.

The plan relies on $2 billion in borrowing the state promises to repay in 2013; local governments are expected to seek loans to compensate. It also takes $1 billion from gas tax money that now pays for local road projects, as well as $1.7 billion in redevelopment funds.