Governor Schwarzenegger

"For several years, we kept the budget wolf from the door . . . but the wolf is back," according to the Gov.'s speech. (Lori Shepler / Los Angeles Times / November 6, 2006)

He has prided himself on thinking big, and used his larger-than-life persona to advocate grand visions for California's future.

But as Gov. Arnold Schwarzenegger begins his fifth year at the helm of the state, he is hemmed in by the past, staring at a fiscal crisis much like the one he was elected to solve. That leaves little room for the "fantastic" ideas on which he has staked his reputation as a visionary.

Instead, political observers said, he will be forced to confront a basic and perennial question: whether California voters are willing to pay for the programs they want.

On Tuesday, Schwarzenegger, a Republican who in the last two years has been closer to Democrats, will use his State of the State address to lay the groundwork for a broad array of cuts to state services, according to his aides.He will call on everyone to share the pain of closing a budget gap the administration has projected at greater than $14 billion -- without raising taxes. And he plans to renew previously failed efforts to change the state budget process.

Two days later, he will lay out the sobering details. He will declare a fiscal emergency and offer proposals for slashing state programs now and outline a slim budget for the next fiscal year.

Those plans are likely to draw the battle lines for the year between his administration and interest groups, and between Democrats and Republicans in Sacramento, many of whom are already girding for a fight.

"The governor has set the stage effectively by asking that the state agencies cut spending across the board," said Ron Nehring, the state Republican Party chairman. "The choice is very clear. Either government has to prioritize its spending or the alternative is to raise taxes, which is something that Republicans will continue to resist."

Democrats, who control the Legislature, are insistent on increasing state revenues through higher taxes or closing tax loopholes.

"We're not going to cut our way out," said state Senate President Pro Tem Don Perata (D-Oakland). "I don't think anybody, unless they're really on the fringe, believes that providing healthcare for children or services in the home for a paraplegic is the wrong use of government."

Yet even as the governor asks the public to accept dramatic reductions, he pushes on with his ambition of the last year: to dramatically expand health insurance. He will have to deliver the message that programs must be cut to avoid raising taxes while simultaneously asking voters to raise taxes on cigarettes, employers and hospitals to support a new $14.4-billion health plan.

"The state should not come to a standstill because there is a budget problem," said Adam Mendelsohn, the governor's communications director. "Clearly, for Gov. Schwarzenegger the budget is the first priority, but that's not going to stop him from addressing healthcare and education."

Jack Pitney, professor of government at Claremont McKenna College, said it was natural for the governor to want the healthcare expansion for his legacy.

But, he added, "the deficit will overshadow everything else."

"It's tempting for him to think about big goals, but he has to think about the big deficit first," Pitney said. "He has to either cut spending or raise taxes. Either of those courses is going to be very politically unpopular."

Education funding

Schwarzenegger plans to cut education funding in a period his administration had previously billed as "the year of education." Mendelsohn said Schwarzenegger would still make education a priority by, for example, trying to improve school performance, which Mendelsohn said could be achieved without high expense.

And Schwarzenegger will revisit policies he has tried before without success. Administration officials said he would portray his fiscal battle as an effort to fix California's money problems permanently by automatically curtailing constitutionally required spending increases when revenues are flagging.

The state can already do that with approval from the Legislature, though it can be politically difficult.

Schwarzenegger and his aides are discussing a proposal that would require the state to set aside money when revenues are healthy so it can use them -- while limiting spending -- in tougher years.