State May Face Bigger Budget Gap

SACRAMENTO —  The state budget Gov. Arnold Schwarzenegger proposes in January will show that the shortfall has worsened substantially in recent months, administration sources say, and will force him to propose deeper spending cuts than previously expected.

The ballooning gap reflects Schwarzenegger’s limited success at reining in spending. State prisons are over budget, Indian casinos are generating less cash than expected and the governor’s proposal to raise $460 million by diverting a share of punitive damages from civil lawsuits to the state has fallen flat. And a plan to borrow $800 million to pay the state’s contribution into the pension fund for its workers is tied up in court.

In all, the projected shortfall has grown to at least $8 billion, say administration officials who asked not to be named. That’s $1.3 billion more than was projected last month by the nonpartisan legislative analyst’s office, which lawmakers look to on budget matters.

Department of Finance spokesman H.D. Palmer declined to discuss specifics. But he confirmed that “the gap we will have to close is higher than what the legislative analyst’s office is projecting.”

Administration officials have been warning lobbyists and activists to brace for even deeper proposed cuts in what was already expected to be one of the most difficult budget years in state history.

At a meeting earlier this week, Secretary of Health and Human Services Kim Belshe warned a group of healthcare advocates what was coming.

Mike Herald, a legislative advocate with the Western Center on Law and Poverty, said the message he got from the gathering was that “the overall budget problem has grown and therefore the cuts to health and human services will be growing along with it....

“I think what she was telling us was the cuts are going to be deeper than we thought because the budget situation has become worse.”

Fred Silva, a budget analyst with the Public Policy Institute of California, says the growing projected gap makes balancing the budget much more challenging.

Federal mandates, state constitutional funding formulas and debts the state must repay leave little flexibility for the governor and legislators to make cuts in a budget that this year reached $105.4 billion.

Each $1 billion added to the shortfall, Silva said, “is twice as tough to deal with as the one before it. It’s geometric.... It’s not like we can just say we’ll cut 10% across the board and be done with it.”

The news that spending on state prisons is $210 million over budget, contributing to the increase in the projected deficit for next year, came as a disappointment to legislators. State Sen. Gloria Romero (D-Los Angeles), chairwoman of a special Senate committee on the correctional system, said she was outraged, particularly because the disclosure was coming “during the holidays when legislators are out of town.

“I am not pleased, and I’ve asked for answers,” she said.

Romero said “credible sources” within the department had told her that an unexpected increase in the prison population and costs associated with a new prison in Delano had caused the deficiency.

A spokesman for the Department of Corrections confirmed that the prison system was over budget, but said the department had not yet determined by how much.

Another factor cited for the overspending was the department’s slow progress on its new parole reform initiative. Announced with fanfare earlier this year, that initiative had been expected to substantially reduce the inmate population by cutting the number of ex-convicts sent back to prison for parole violations.

Instead, after an initial dip in the re-incarceration of such violators, progress has stalled, in part because of hiring freezes, budget cuts and trouble negotiating contracts with operators of halfway houses, which serve as alternatives to prison for some.

“As far as I can tell, they have just not moved on parole reform,” Romero said.

This month, the deputy director in charge of the parole division was removed from his job and given a different post.

Many budget analysts say that because of problems such as those in the prison system, they would not be surprised to see the budget shortfall grow even more in the coming months.

“The odds are the problem will get even bigger,” said Jean Ross, executive director of the California Budget Project.

And if it does, so does the political problem for the governor. Republican political analyst Dan Schnur said the more the state’s budget gap grows, the harder it will be for the administration to move on with the rest of its agenda.

“The real danger is allowing bad budget news to overwhelm everything else the administration is trying to accomplish,” he said.

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Times staff writer Dan Morain contributed to this report.