EDITORIAL:Governor calls shots in budget deals EDITORIAL:Governor calls shots in budget deals (May 26, 2004)

California's deficit struggles are far from over, and as local cities, counties and school districts prepare their budgets, they have agreed to live with smaller state take-aways for the next two years. But compared with the uncertainty of last year, this time around the cuts are a known quantity and near-normal economic growth is expected to kick in for the 2006-07 budget.

For Peninsula communities, the news is mixed. Menlo Park, facing a $2.2 million budget shortfall next year alone, will lose more than $500,000 in state revenue in each of the next two years. Other local cities, special districts and the county will give up significant revenue as part of a deal Gov. Arnold Schwarzenegger negotiated with the California League of Cities last week in Sacramento.

League members voted to accept the governor's offer that will reduce local government revenues statewide by $1.3 billion, almost welcome news since the estimate released in January was twice that amount. After fiscal year 2005-06, the governor promises to restore $700 million in diverted revenues to cities and counties. But he agreed to do so only after local governments agreed to back away from their own already qualified ballot initiative that would immediately limit the state's right to take local tax revenues and instead support the governor's measure to delay such actions for two years.

The governor has made similar deals with other interest groups, including K-12 schools and the UC Board of Regents, as he attempts to outflank the Legislature, which still must approve his handiwork. It will be difficult for legislators to refuse the deal crafted by Gov. Schwarzenegger, whose popularity has enabled him to prevail in virtually every tussle with them so far. This time, with most state interest groups already signing off, the governor's "May Revise" is much more than a starting point for budget negotiations.

Portola Valley Town Administrator Angela Howard hit it right when she said, "This governor is really a force to be reckoned with. It becomes rather attractive to look for some sort of alliance so that he does not actively campaign against you."

San Mateo County finds itself in much better shape under the May Revise formula, losing $6.7 million, compared with the $24 million predicted early in the year. And the county will actually receive a 3 percent bump in state revenues for medical expenditures, although Supervisor Rich Gordon told the Almanac that the health plan that cares for the indigent is not out of jeopardy.

As for local K-12 education, most school officials contacted by the Almanac agreed that the deal they struck earlier with the governor will leave them relatively unscathed, although like other institutions, schools will not receive budget increases in most cases.

Overall, most local agencies are breathing a sigh of relief that the state will not take even more of their revenue, as it has in prior years. Atherton City Manager Jim Robinson said some had described the deal with the governor as short-term pain for long-term gain.

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