Schwarzenegger: 'Our wallet is empty'

Declaring that "California's day of reckoning is here," Gov. Arnold Schwarzenegger said today the state should turn its dire budget straits into an opportunity to make government more efficient.

Speaking to a rare mid-year joint session of the Legislature and other constitutional officers, Schwarzenegger acknowledged the billions of dollars in spending cuts he has proposed to close a $24.3 billion hole in the budget will be devastating to millions of Californians.

"People come up to me all the time, pleading 'governor, please don't cut my program,'" he said. "They tell me how the cuts will affect them and their loved ones. I see the pain in their eyes and hear the fear in their voice. It's an awful feeling. But we have no choice.

"Our wallet is empty. Our bank is closed. Our credit is dried up."

In the face of such adversity, the governor said, "there are also some great opportunities." Among the reforms he said should be enacted are:

• Making school textbooks available in digital formats, freeing "hundreds of millions of dollars that could be used to hire teaches and reduce class sizes."

• Using privately run correctional facilities as part of an effort to reduce the cost of prisons.

• Giving local governments more opportunity to run things without interference from Sacramento.

• Giving school districts more flexibility "and not tie their hands with strict rules like who is allowed to mow the lawn or fix the roof or do the plumbing."

Schwarzenegger also repeated his earlier calls for the abolition of some state boards and commissions, which he called "redundant," and selling off some state property.

Adhering to his sometimes-relentless optimism, Schwarzenegger expressed his belief that legislators could set partisan differences aside and ignore pressure from special interests.

"Let's use this crisis as an opportunity to make big and lasting change," he said. "Let's not think just in the short-term. Let's think about the long term ... I have faith in all of you. I have faith in our ability to once again come together for the good of the state."

But Democratic legislators, who control majorities in both houses, signaled they weren't ready to ardently embrace the governor's proposals.

"The ship of state is sinking, financially, and the governor wants to throw women and children off the lifeboat first," said Assemblywoman Noreen Evans, D-Santa Rosa.

Evans, who chairs a special 10-member joint committee trying to fashion a deficit-closing plan, said the only thing she heard that was new in Schwarzenegger's speech was his pitch to privatize some state prisons and consolidate two state tax-regulating agencies.

Asked if she thought the governor's call for a nonpartisan approach would sink in, Evans said, "I don't think so. I have to digest it and listen to what other people say, but I didn't have the impression that that brought us together."

The short-term problem faced by lawmakers is closing the budget gap in time for state officials to go the private investment markets and borrow billions of dollars to get the state through the first months of the fiscal year that starts July 1.

State Controller John Chiang has warned that without such loans, the state's coffers will run dry by the end of July. Chiang said last week that as a practical matter, the budget must be patched up by mid-June in order to give officials time to borrow the money.

Chiang reiterated his warning after the governor's speech, saying whatever plan lawmakers and Schwarzenegger come up with has to be viewed as "credible" by Wall Street.

"I think the governor was trying to light a fire and provide some inspiration," the controller said. "He's offered some specific solutions to help us get to resolving some of the issues."

Schwarzenegger has proposed a plan that relies partially on accounting maneuvers and borrowing funds from coming fiscal years, but mainly on deep cuts in nearly every program funded by state government.

Those range from cutting spending on K-12 schools, community colleges, the University of California; releasing some non-violent prisoners a year early; cutting pay for most state workers and laying off others; closing 80 percent of the state's parks, and wiping out or paring back on health and social service programs for California's neediest residents.