By Shane Goldmacher
Los Angeles Times
June 13, 20

Reporting from Sacramento — Gov. Arnold Schwarzenegger on Friday backed away from his plan to raid local governments for $1.9 billion to help balance the state's books -- a proposal that has drawn heavy fire from municipal leaders and lawmakers from both sides of the aisle.

"If both parties don't like to borrow from local government, then of course we won't borrow from local government," Schwarzenegger said, answering an audience question after a budget speech in Escondido.

His spokesman later said the governor would drop his proposal only if state lawmakers agreed to other spending cuts to bridge the budget gap.

Members of the Legislature's bipartisan budget committee Friday criticized the idea of borrowing from local governments, saying it would exacerbate the state's long-term financial problems. The $1.9 billion would have to be repaid with interest within three years.

"I'm not stuck with any of those ideas," Schwarzenegger said later. "What's important for us is that we solve . . . the $24-billion deficit."

Los Angeles County Supervisor Don Knabe said he was encouraged by the governor's comments, though not entirely relieved. "The reality is if they don't do it that way, they have to do it some other way," he said of the proposed cuts. "The question is now: Where does it come from? We're still in a difficult position -- we're not worry-free."

Schwarzenegger said his finance department was already looking for ways to replace any borrowing from municipalities. He said savings might be obtained by cutting foster care services or state employee health benefits, for example.

After unveiling the governor's May budget proposal, Schwarzenegger finance director Mike Genest said the administration had "scraped the bottom of the barrel" to find acceptable spending cuts. That could make identifying new cuts, and selling them to the Democrat-dominated Legislature, particularly difficult.

Meanwhile Friday, some employees in the state Senate were bracing for the possibility of involuntary, unpaid furloughs four months after rank-and-file state workers were forced to stay home two days each month without pay. The governor ordered the original furloughs but does not have that authority over the legislative branch.

According to an e-mail obtained by The Times, sent by Senate leader Darrell Steinberg's chief of staff to other top Senate aides, Republican and Democratic senators voted in closed-door caucuses this week to furlough staff earning more than $50,000 annually.

The e-mail says the goal is to save 5% of workers' pay. That equals roughly one furlough day a month. In addition, dental and orthodontic benefits would be reduced. And the Senate employees' vision care plan, which allows for two pairs of glasses each year, could be "reduced from 2 to 1 pair of glasses," according to the e-mail.

No action has been taken yet, the e-mail states, and the Senate Rules Committee, which must approve such reductions, will not meet for two weeks. The state Assembly has not furloughed its employees but is examining options for reducing expenses, said Jon Waldie, chief administrative officer of its rules committee.

The furloughs would be part of the Senate's attempt to slice 10% from its budget -- and the Legislature's broader effort to close California's projected $24-billion shortfall.

Tensions are running high in Sacramento. The state faces a looming fiscal "meltdown," according to state Controller John Chiang. He released new projections this week showing that the state will run out of money by July 28 without quick action on spending cuts, higher taxes or a combination of both.

Schwarzenegger wants prompt action. "After June 15th, every day of inaction jeopardizes our state's solvency," he said Friday in Escondido.

Lawmakers on the budget committee pressed for a more deliberative approach, focusing on a July 1 deadline.

"The governor is not our boss," said Assemblyman Roger Niello (R-Fair Oaks).

shane.goldmacher @latimes.com

Times staff writers Eric Bailey and Molly Hennessy-Fiske contributed to this report.