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Schwarzenegger Likely to Veto Calif. Social Programs

Gov. Arnold Schwarzenegger on Tuesday is expected to use his line-item veto power to make additional cuts to California's latest spending plan—a move advocates fear could further hurt the poor.

California Gov. Arnold Schwartzenegger
cnbc.com
California Gov. Arnold Schwartzenegger

Social service advocates worry the Republican governor has little choice but to go after money counties receive to administer welfare and social service benefits as he seeks to restore a reserve fund for the state.

Likely targets include welfare-to-work assistance, in-home support, foster care and health insurance for poor families.

With much of state spending tied up by federal and constitutional requirements, the Schwarzenegger administration wants to ensure the state has a cash cushion in case of emergencies such as earthquakes and wildfires.

"I just want to assure everyone that we will build up our reserve. We will make the necessary cuts," the governor said Friday in announcing he would sign the budget passed by the Legislature.

The governor and lawmakers had planned for a $918 million reserve in the revised budget, but the Assembly rejected two measures—raiding local transportation funds and authorizing additional oil drilling—that would have brought $1.1 billion to the state.

The governor's spokesman, Aaron McLear, said Schwarzenegger will restore a reserve fund but isn't expected to cut a full $1.1 billion in spending. He declined to release details.

"We will always be in a position to aggressively respond to disasters," McLear said.

Advocates view additional cuts to social programs as another blow since the Schwarzenegger administration has reduced benefits in response to the recession.

California's economy has been hit by the housing market slump and high unemployment, and the latest efforts to close a $26 billion shortfall come just five months after lawmakers and the governor ended months of negotiations to close a previous $42 billion deficit.

Under the budget the governor will sign Tuesday, the state will impose tougher sanctions on CalWORKS recipients who don't meet work requirements. And in-home support workers will have to undergo background checks and have their fingerprints taken.

In earlier rounds of cuts, California lowered Medi-Cal reimbursement rates for health care providers and eliminated optional benefits such as dental and eye care for adult recipients.

"Why further punish children, low-income families, and the aged and disabled because the Legislature did not approve borrowing gas tax revenue?" said Frank Mecca, executive director of the County Welfare Directors Association of California.

Once Schwarzenegger signs the budget, his finance team is expected to begin briefing the state treasurer and controller, creditors and analysts on how the latest spending plan will affect day-to-day cash flow.

The governor and lawmakers are hoping their latest plan provides the assurance lenders need for the state to take out loans and stop issuing IOUs to thousands of vendors. Representatives for the treasurer and controller said it would take a few more days to assess the state's borrowing needs and decide whether California can stop issuing IOUs.

Matt Fabian, a bond analyst at Municipal Market Advisors, based in Concord, Mass., said the plan was filled with accounting tricks and will likely do little to improve the state's poor credit rating.

Fitch Ratings placed at California's general obligation bond debt at "BBB," which is still investment-grade. Most states have a higher-quality "AAA" or "AA" rating.

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