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State Budget Briefing Is Grim

Schwarzenegger meets with the treasurer and calls California's fiscal condition 'disastrous.' He also has a lengthy, cordial talk with Davis.

October 24, 2003|Matea Gold, Evan Halper and Nancy Vogel | Times Staff Writers

SACRAMENTO — Gov.-elect Arnold Schwarzenegger got a grim briefing on California's budget Thursday, and emerged appearing sobered and calling the state's financial condition "disastrous."

On his second day of meetings with state officials, the incoming governor met with state Treasurer Phil Angelides for a 35-minute morning tutorial. He said afterward that he was worried about the precarious status of billions of dollars worth of bonds used to balance this year's budget. Angelides warned that the bonds are vulnerable to a legal challenge.

The governor-elect, whose usual ebullience was dampened after the meeting, said, "The problem was created over the last five years, and so you can't expect that -- even though I've played very, very heroic characters in the movies, but you can't expect me to walk into his office and all of a sudden come out with the answers."

"It will take a while to resolve those problems," he said. "They are very difficult problems, and we are really in a disastrous situation financially."

Still, he insisted that the state would be able to balance its books without raising taxes, a pledge he made repeatedly in his campaign to unseat Gov. Gray Davis. "Oh yes, absolutely," Schwarzenegger said.

Angelides was less optimistic.

"The math is very difficult to achieve," he said after the governor-elect left his office. "I think it's tough if you want to protect the essential investments in education that will make us a world-class economy. On the other hand, the governor-elect deserves a chance to lay out how he would approach these issues."

Senate Republican Leader Jim Brulte, who played a major role in putting together the $13 billion in borrowing that helped balance the current year's budget, called Angelides' comments about the bonds alarmist. He said state attorneys and outside bond counsel are confident that the financing will survive legal challenges.

"If the treasurer had doubts ... he should have voiced them during the budget process," Brulte said.

Schwarzenegger did not say how he planned to deal with the crisis. He avoided questions about whether he would push for a ballot measure asking voters to approve a new sale of bonds so the borrowing could withstand a court challenge.

He also did not say what, if anything, about Angelides' presentation had surprised him.

As Schwarzenegger campaigned to unseat Davis this fall, state officials warned that California's fiscal situation was worsening, and the GOP candidate himself acknowledged that the budget shortfall could reach $20 billion. Still, he projected a sunny optimism during the campaign that he would be able to resolve the budget crisis once he brought in experts to scour the books and curtail spending.

On Thursday, some Democratic lawmakers who had been alarmed by Schwarzenegger's confidence on the campaign trail said they were relieved that he now appeared to grasp the dire nature of the state's finances.

"To me, it's a positive sign that he will come into a situation and say, 'I didn't realize,' " said Assemblyman Lloyd Levine (D-Van Nuys), a member of the Assembly Budget Committee.

"If you don't have familiarity and experience to a certain degree on the state level on policy, you can be in for a significant surprise.... You just can't come in, as he said in the campaign, 'Open all the books, hold an audit, identify the waste and fraud' ... and solve the problem."

Assemblywoman Jenny Oropeza (D-Long Beach), chairwoman of the Assembly Budget Committee, said it was clear from Schwarzenegger's campaign rhetoric that "he did not have a grasp of what the dynamics were."

"I'm not surprised at his alarm," she said, "because there are problems between what he has promised and what is realistic."

Schwarzenegger's grim assessment of California's finances came as he spent another whirlwind day in the state capital visiting Democratic statewide officeholders. But the day was dominated by a lengthy meeting with Davis.

The two men spoke for an hour and a half, as Davis gave his successor a thick white binder labeled "Transition 2003" and walked him through the responsibilities of the office. They greeted each other cordially, although a bit uncomfortably, a sharp contrast to the bitter words both exchanged during the recall campaign.

During a 15-minute session open to a small pool of reporters, the incoming and outgoing governors sat in twin maroon leather chairs in a conference room, exchanging pleasantries. As Davis passed along tidbits of advice (His wife always told him: "Just enjoy every moment"), Schwarzenegger sat stiffly, nodding in response.

"That's the table I was telling you about," Davis said, pointing to the long glossy table that dominates the room used for Cabinet meetings.

"Oh yeah, that's where all the big decisions are made," Schwarzenegger responded.

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