New revenues could bolster May revise of state budget

By: EDWARD SIFUENTES - Staff Writer | Sunday, May 7, 2006 12:14 AM PDT ∞

An unexpected surge in revenues ---- estimated at $4 billion ---- has given Gov. Arnold Schwarzenegger some budgetary wiggle room.

And health, transportation and municipal officials are optimistic that they might see some of that extra money when the governor releases his revised spending plan for 2006-07 later this week.

The so-called May revise is the final budget plan the governor submits to the Legislature after counting the year's personal income tax returns and determining, much more precisely than in January, how much money the state is going to take in.

Schwarzenegger's $125.6 billion budget, unveiled in January, proposed spending $97.9 billion from the state's general fund in the fiscal year that begins July 1. The plan would increase spending on public schools, health services and transportation.

The governor's budget was welcome news for many who, in recent years, have had protracted battles with the governor as he tried to curb spending. Some officials said they hope they don't see major changes in the revised version.

"From what I can tell, the January product was the first time we didn't see much effect on us," said Barbara Mannino, executive director of the Vista Community Clinic, a nonprofit organization that serves more than 40,000 patients throughout North County each year. "And if anything, funding will be as expected or better."

Schwarzenegger's budget would spend $35.3 billion on health and human services, a $1.2 billion increase over this year.

The proposed budget would provide a 7 percent boost in spending over the current fiscal year without raising taxes. It's the first in several years to cover spending without much borrowing. The deadline to enact the budget is June 15.

Department of Finance spokesman H.D. Palmer said the governor's revised budget, expected to be released Friday, will include an additional $4 billion in unexpected tax revenue. Some of that money could be used to pay down state debt and increase spending on education, he said.

Palmer said the governor has a record of paying down debt. In January, Schwarzenegger defended his budget proposal, saying the state's structural deficit has dropped from $16.5 billion to $4.7 billion since he became governor in 2003.

Legislative Analyst Elizabeth Hill, whose nonpartisan state agency examines California policy, criticized the governor's proposal in January for spending too much of the unanticipated income on new or expanded programs. The budget gives $2.5 billion more for public schools and colleges.

The proposal estimated $92 billion in revenue while spending $97.9 billion in general fund money, resulting in a $6.4 billion operating deficit. The plan also included $25 billion in spending from special funds, such as gas tax money dedicated to specific programs such as highway repairs. The rest of the spending, $2.7 billion, is to repay bonds.

Local governments that saw part of their state revenues withheld in recent years could benefit from the unexpected revenues. In 2004, local governments agreed to give up $2.6 billion over two years in exchange for a guarantee that their budgets would not be raided in the future.

The governor's plan would restore $1.3 billion to local governments each year.

With their budgets apparently secure, cities are focusing their energy elsewhere, including a $37.5 billion public works bond package that would provide money for housing, roads, schools and flood control projects, said Megan Taylor, a spokeswoman for the League of California Cities, a group that lobbies in Sacramento for cities.

"The bonds are really huge and that's where we expect the biggest change," Taylor said.

Likewise, Gary Gallegos, executive director of the San Diego County Association of Governments, said the bond package is what's grabbing his attention.

"At this point, we're now focused on the bond issue," said Gallegos, whose agency is the county's main transportation planning group.

The governor's budget proposal restored $1.4 billion in gas tax money guaranteed to local streets, roads, cities and counties under Proposition 42, passed by voters in 2002.

Gallegos said the money would help pay for projects on Interstate 15, along the border and related to the Sprinter, an Escondido/Oceanside light-rail line along the 78 corridor.

"It's better news than we've seen in recent years," he said.

Under the proposed budget, education would get $40.5 billion, a 10 percent increase over the current 2005-06 fiscal year. Critics blasted the governor in recent years, claiming he was underfunding education. Their criticism stemmed from his borrowing $3.7 billion in fiscal year 2004-05 in education funding, then repaying only $2 billion of that.

Jean Ross, executive director of the nonprofit watchdog group California Budget Project, said that while the budget will probably include a boost in funding for education, schools are not likely to get their full share.

Beyond that, Ross said there are few conclusions she can draw until Friday's revised budget.

"It's still early, everybody is just trying to get a handle on how much money there is," she said.

There are no tea leaves to read, Ross said. "They are still pouring the water."

The Associated Press contributed to this report. Contact staff writer Edward Sifuentes at (760) 740-3511, or esifuentes2@nctimes.com.