Arnie Faces Battle Over Job Cuts

If he can persuade the cinema-going public to buy tickets to Red Sonja, a much-mocked action film he made in 1985, then he can sell anything. Today Arnold Schwarzenegger faces an even harder test: selling his first budget.

Thousands of state employees are likely to lose their jobs in the wake of predicted deep cuts in the public services. College fees are expected to rise by between 10% and 40%, welfare services to the elderly to be cut and an attempt made to extract $1bn (£550m) from the native American gaming casinos.

At the heart of the budget is a proposal to borrow $15bn in bonds, a measure that has cross-party backing. However, this still leaves a further $10bn to be found and Mr Schwarzenegger has pledged no tax increases. Last month the governor rescinded the state car tax increase as pledged in his election campaign, thus removing $4 bn in revenue from the state.

Mr Schwarzenegger has indicated that he will be seeking extra revenue from a number of sources. These include the federal government from which he is seeking to recover a greater proportion of federal taxes than the state currently receives.

Leaks about the budget suggest that an increase of 10% in fees for all college students and up to 40% for graduate students will be sought. A lowering of the ceiling for those eligible for financial support is likely.

Mr Schwarzenegger will spell out details of how he intends to extract more money from the native American casinos. This week he appointed Daniel Kolkey, a former official from the last Republican administration as negotiator to try to renegotiate the amount of money paid by the casinos.

He is likely to seek around 25% of their revenue, around $1bn. Currently, casinos on sovereign native American land do not have to pay the taxes they would if they were operating in the rest of the state. The native American casino operators - major financial backers of the defeated governor, Gray Davis - oppose the move, arguing that their status is in compensation for centuries of exploitation.

Already the governor has indicated that he will seek new revenue through a heavy increase in fees to enter and stay in state parks. He is also increasing the cost of hunting and fishing permits but these measures will only provide a tiny proportion of the money needed.

One of the likeliest cuts is from the Healthy Families programme which gives healthcare insurance to 700,000 children of low-income workers. It is understood that the new budget will make access to this programme more difficult.

Mr Schwarzenegger is gambling that a pro-business strategy will woo back companies that have left the state.

Some business people have claimed that the unions in California are too strong and payments such as workers' compensation - for injured or sick employees - were too high and favoured the employee against the employer. His plans to end the existing arrangement is a key part of the strategy.

The governor is also likely to seek to cut the state's massive prison budget. California has the highest per-capita prison population outside China, with 162,000 inmates costing $28,500 per head annually.

Already Mr Schwarzenegger has authorised a less strict parole policy so that non-violent parolees are not automatically reimprisoned for technical parole violations.

Much of the budget has been driven by the new finance director, Donna Arduin, a hardliner who has a reputation for imposing deep cuts in public services in Republican controlled states.

The governor has had to retreat on some of his spending proposals. In December, he announced that he would be making a series of cuts in programmes used by people with mental and physical disabilities.

This led to a protest by wheelchair-users outside the state capitol in Sacramento and a subsequent reversal of the plans when the governor announced that the cuts would not be "consistent with my record as an advocate for the developmentally disabled".

The California Chamber of Commerce has thrown its weight behind Mr Schwarzenegger. Democrats have voiced doubts. John Burton, the pro-tem president of the state, said that the only way to address the budget deficit was by taxing the very wealthy. "We have to make sure that poor women and children are not thrown deeper into poverty," he said.