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Schwarzenegger Seeks New Budget Process to Address Deficits

Saying “the wolf is back” at the door, Gov. Arnold Schwarzenegger proposed a constitutional amendment in his State of the State address Tuesday that would force automatic cuts to the state budget to avoid large deficits like the one he is now facing.

The governor wants to trigger the cuts when state finances start falling into the red and create a surplus when revenues come in higher than expected. It would be capped at 15 percent of the budget and could be used only to help with the next downturn.

Schwarzenegger gleaned the idea from former President Bill Clinton, who had similar budget powers as governor of Arkansas. He said it would put an end to the feast-and-famine cycle of California budgeting.

"For several years, we kept the budget wolf from the door, but the wolf is back," Schwarzenegger said, addressing state lawmakers in the Assembly chamber two days before he is to lay out a budget for the coming fiscal year filled with deep cuts.

"We cannot continue to put people through the binge and purge of our budget process," he said. "It is not fair. It is not reasonable. It is not in the best interests of anyone."

Revenues have tapered off with the slowing economy but spending continues to grow, and Schwarzenegger is grappling with a projected $14 billion budget gap over the next 18 months.

He said the state is spending $400 million to $600 million more each month than it is collecting in revenues.

The constitutional amendment would not help the governor with his current budget problems, since it requires a vote of the people before it can take effect. But Schwarzenegger said it would make the state's budgeting process less volatile in the future.

Under the governor's plan, lawmakers would be able to decide how to make the cuts. But the governor would have the authority to trigger them any time the Department of Finance determined the state was starting to run a deficit.

Those predictions would be made three times a year, in November, January and June. If the deficit were 1 percent or less, state spending would have to go down by 2 percent. If the deficit were higher, spending would go down 5 percent.

Schwarzenegger is hoping to persuade state lawmakers to place the budget reform measure on the ballot. But that requires two-thirds majorities in both houses, which may be hard to get. Democrats dislike automatic cuts and helped defeat Schwarzenegger's two previous attempts at budget reform.

Democrats refused to adopt the spending cap he requested when he first took office. And they rallied to defeat a ballot measure he proposed in 2005 that would have adopted a cap and give the governor midyear budget-cutting authority.

The governor's proposed budget reform is in the same vein as his failed attempts to control state spending in 2003 and 2005, but comes with a new twist: the Legislature, not the governor, would have the first crack at making the cuts.

It also would prevent K-12 education from automatically claiming windfalls in good years, which many blame for ratcheting up state spending to unsustainable levels.

And it would enable lawmakers to decide in advance - on a majority vote basis -- how to make the automatic cuts should the budget fall into deficit.

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