With deficit forecasts growing darker by the day, Gov. Arnold Schwarzenegger is considering a plan to slash California’s safety net for the poor by eliminating the state’s main welfare program, health insurance for low-income families and cash grants to college students.

The stark proposal surfaced in testimony by the administration at a joint legislative hearing Thursday that followed the governor’s decision to withdraw a week-old plan to borrow $5.5 billion to help balance the budget.

Officials in Sacramento began to bore in on the crisis Thursday, with the nonpartisan legislative analyst saying the deficit may already have ballooned to $24 billion and offering skepticism about some of the administration’s plans for closing the gap.

At the same time, lawmakers and the governor had to contend with negative signals from Washington, where officials offered little hope they would agree to guarantee billions in emergency short-term loans, even if massive spending cuts can be quickly enacted.


It added up to a sense of anxiety as lawmakers rushed to cobble together a spending plan before the state runs short of the cash it needs to pay bills in July.

To balance the books, Schwarzenegger is eyeing the dismantling of the state’s CalWorks program, which serves more than 500,000 poor families with children, as well as the elimination of Healthy Families, which provides medical coverage to 928,000 children and teens. Mothballing the two programs would save the state about $1.4 billion in the coming fiscal year, officials said.

If the proposals to slash the safety net come to pass, they would completely reshape the state’s social service network, transforming California from one of the country’s most generous states to one of the most tightfisted in aiding the poor.

Also potentially on the chopping block is CalGrants, a financial assistance program that offers cash grants to lower- and middle-income college students each year. The governor’s proposal would eliminate the 77,000 new grants awarded each year at a cost of $180 million, but that saving would eventually grow to more than $900 million as students graduated and the program was phased out.


Schwarzenegger is considering big cuts to other programs and departments as he struggles to downsize state government after Tuesday’s voter rejection of nearly $6 billion in funding measures.

Among the possibilities is a 10% reduction in court funding as well as slashing $600 million from state universities and $750 million from the state prisons, mostly from programs designed to rehabilitate inmates.

The governor’s aides said the proposals, laid out during the opening session of three weeks of planned legislative hearings to shape the state’s deficit solutions, remain ideas under consideration.

Though nothing is in concrete, Sacramento is running out of solutions. “We have very few options left,” Schwarzenegger spokesman Aaron McLear said, adding that it is “very likely” that the new cuts will make the final list.


Advocates for the poor said elimination of those health and welfare programs would come at a steep price. Tens of thousands of families and children would be stripped of temporary financial help and health assistance, and the state would lose a huge pool of federal money that pays the majority of the program’s costs.

Anthony Wright, executive director of Health Access California, said federal dollars cover up to two-thirds the cost of the Healthy Families program, which is for the working poor. The federal government pays about 58% of the cost of CalWorks.

“It’s beyond draconian,” Wright said. “It’s insane. Not just for dropping 1 million children from healthcare, but also for losing substantial federal funding.”

One of the top Democrats on the 10-person legislative panel charged with shaping the state’s deficit reduction plans also expressed frustration with Schwarzenegger’s proposals.


“Unexpected twists make for good Hollywood stories but bad governance, especially in a time of crisis,” said Assemblywoman Noreen Evans (D-Santa Rosa).

Though eliminating whole programs for the poor is “theoretically” possible, Evans said during the hearing Thursday, “I don’t know if it’s tolerable.”

Another member of the legislative committee, Sen. Mark Leno (D-San Francisco), called the governor’s proposals “horrifying” but said all options need to be put on the table so the public can see what may happen if there are no increases in revenue.

Republicans, however, say the state has sunk into a deficit quagmire in part because of a tax-and-spend philosophy and over-regulation of business brought on by the majority Democrats.


“I’m a little [upset], frankly, that we’ve gotten ourselves into this crisis,” Sen. Bob Dutton (R-Rancho Cucamonga) said during the hearing, adding that the state needs to avoid new taxes or borrowing that passes the current woes on to future generations.

Schwarzenegger, meanwhile, said the state now has few options but to make tough cuts to match plummeting revenues not seen in a decade.

“Our revenues now are back to the 1999 level,” Schwarzenegger told reporters after a morning prayer breakfast in Sacramento. “So we have to do drastic measures. We have to dial back to what was happening in 1999.”

There was other grim news, as federal officials delivered a sobering response to the state’s pleas for short-term help to pay its bills. Treasury Secretary Timothy F. Geithner raised doubt that he has the authority to guarantee the loans California needs to avoid running out of cash in the next few months.


In Sacramento, state Legislative Analyst Mac Taylor said the continuing slump in revenue could mean the governor’s forecast of a $21.3-billion deficit might be $3 billion short, meaning the chasm between revenue and spending could be at $24.3 billion or more.

He also said some of Schwarzenegger’s plans might not work. Taylor expressed doubt about the proposed $1-billion sale of a state-owned workers’ compensation insurance program and a plan to save $750 million on the state’s costly Medi-Cal program by cutting healthcare reimbursements or slashing the number of eligible participants.

Taylor also emphasized a need for the Legislature to “make the difficult decisions” and act quickly, which would “likely boost the confidence of the public and investors in the budget process” as well as prevent the anticipated cash crunch in early July.

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eric.bailey@latimes.com

patrick.mcgreevy@latimes.com