Top California lawmaker aims to tap rainy-day funds

SAN FRANCISCO (Reuters) - A top California lawmaker on Tuesday countered Gov. Arnold Schwarzenegger's budget plan that would slash spending and scrap various programs to fill a $24.3 billion gap with a proposal that requires spending cuts but also taps reserves to help narrow the deficit.

Revenues of the most populous U.S. state have plunged amid recession and rising unemployment, swelling the budget gap and forcing state officials to agree to some form of austere budget for the fiscal year beginning in July.

Schwarzenegger, a Republican, has urged dramatic spending cuts that would include eliminating the state's welfare program, a proposal too severe for Democrats who control the state's Legislature.

They agree there is a need to pare spending but would use rainy-day funds to keep the welfare program and other human-services programs in business, State Senate President Pro Tem Darrell Steinberg told reporters.

"The purpose of a rainy-day fund is to provide reserves for a rainy day," Steinberg said. "It is thunder and lightning in California right now."

Steinberg would cut $13 billion in spending and use up to $4 billion of the estimated $4.5 billion reserve that Schwarzenegger has in his budget plan to help fill California's budget shortfall.

Additionally, Steinberg said he aims to have a budget through the Legislature by the end of this month and that it would not include borrowing $2 billion from local governments as Schwarzenegger's plan proposes.

"We are not going past July 1. We're getting it done. We have to," Steinberg said.

NEED FOR SPEED

California lawmakers typically disregard their June 15 budget deadline and routinely let the state government start its new fiscal year without a budget in place, a perennial irritant to credit rating analysts evaluating California's general obligation debt rating, the lowest of any U.S. state.

Schwarzenegger and lawmakers this year, however, may buck the habit of late budgets because California's financial situation is so pressing to its bond holders, Wall Street and the U.S. government, which some analysts say may need to mount a financial rescue because the state is "too big to fail."

Last month, Fitch Ratings warned California its 'A' long-term credit credit rating may be lowered, another blow helping to focus the Legislature's attention on the budget.

Last month's special statewide election also sent a message to the Legislature. Voters rejected a number of budget-related ballot measures, effectively telling state officials to tackle fiscal policy on their own, according to analysts.

"I'm hearing from folks there is more intensity" among lawmakers, said Steven Frates of Claremont McKenna College's Rose Institute of State and Local Government. "I'm sensing a different vibe this time ... The 'fed-upness,' to coin a term, of the population is starting to manifest itself."

California's budget woes are not confined to the state capital of Sacramento. Local officials are bracing for spending cuts and the potential for Sacramento to borrow funds.

Los Angeles County last week postponed its sale of $900 million of tax and revenue anticipation notes to assess how California's budget crisis would affect county finances.

"This is a 'Rome-is-burning' type of scenario," said Glenn Byers, an assistant treasurer for California's biggest county.

(Additional reporting by Marianne Russ in Sacramento, California; Editing by Jan Paschal)