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SACRAMENTO, Calif. – Despite some $4.6 billion in cuts proposed by California Gov. Arnold Schwarzenegger in his 2004-2005 budget, the state’s Department of Financial Institutions (DFI) came away with an increase in both funding and personnel. Schwarzenegger’s $99.1 billion spending plan calls for an increase of $1.9 million and 20.9 additional employees for DFI, whose responsibilities include overseeing banks and credit unions. The increase, according to state officials, is primarily to implement provisions of SB1, the state’s sweeping financial privacy legislation passed last year by the Legislature. Nine of the new DFI hires would be dedicated to carrying out provisions of the privacy act, according to Alana Golden, a DFI spokesperson. Three of the nine would be assigned to the credit union division, she said. Funding for DFI, which last year operated on a budget of $20.5 million, comes from so-called “special” funding raised through assessments of the institutions the department licenses. Of Schwarzenegger’s total $99.1 billion budget, special funds overall totaled $21.4 billion. The general fund budget was $76 billion, with another $1.9 billion in bond funds. The budget is expected to undergo significant changes as it wends its way through the state legislature. It is supposed to be approved by midnight June 15, but has in past years gone well beyond that deadline. The state’s fiscal year begins July 1. The Republican governor’s proposed budget, which includes no tax increases but includes various fee hikes including as much as 40% increase in tuition for college and university students, faces tough going in the Democratic-controlled legislature. Senate President John Burton has decried the budget, saying it hits hardest at the most state’s most vulnerable residents. “What we have in this budget is the poorest people in our society – the elderly, the blind, the disabled, poor women with children, sick children, sick elderly – being asked to pay for basically the VLF tax cut,” Burton said, referring to Schwarzenegger’s repeal of the state’s vehicle license fee when he took office in November. “I see a state that is turning its back on the most vulnerable in our society in order to pay for a tax cut.” Further complicating the budget is a planned March 15 statewide vote, in which residents will be asked to approve a $15 billion bond issue to help the cash-strapped state. Schwarzenegger has said the state could face bankruptcy unless the bond is passed, and he warned of dire budget cutbacks should it be rejected. “A big part of this budget hinges on whether the bond package that this Legislature approved for the ballot in March is passed by the voters,” said John Van Etten, state legislative lobbyist with the California Credit Union League in Sacramento. “If it’s not passed by the voters, we start at square one. “It could be a very contentious year,” he added. The state is facing a budget deficit of $14 billion in the 2004-2005 budget. “Never before has California been faced with a fiscal challenge of such an incredible magnitude,” Schwarzenegger said in releasing his budget on Friday, Jan 9. “Over the past five years, the politicians have made a mess of the California budget” he said. “Now it’s time to clean it up.” Schwarzenegger, who was voted into office in a recall election that ousted Democratic Gov. Gray Davis, said “easy choices” were made in the budgets over the last two years. “Those budgets were shell games, using tricks and gimmicks to put off the hard decisions until after the next election cycle,” he said. Van Etten agreed. “Some of the easier things to do with the budget to fix the revenue shortfall, those tricks have been played and now there’s some significant real cuts proposed here and I don’t think they can get around them,” he said. Whether DFI will manage to keep its budget increase and additional employees is just one small part of the budget battle. “In the past, as part of bringing the overall budget in line and part of meeting the Legislature’s mandate for the reduction of state positions they have gone into all the special funds,” Van Etten said. “This proposal did not do that.” The increased funding, if approved, would not have any impact on assessments that credit unions pay, Van Etten and Golden both agreed, noting that the funds were already there to pay for the majority of the positions. “Even though the current budget as of today adds these positions, we have no way of knowing if we’ll actually be able to fill them and if we’ll even keep these throughout the budget process (because) it’s so early,” Golden said. “These funds are there,” she added. “And now with SB1 and the budget would give us the approval to use the funds.” “There could be very significant revisions to this proposal by May,” Van Etten said. “There may be the political pressure again to reduce the number of state employees. That was what in the past has led to restrictions of staffing at DFI even though it’s a special fund. That political pressure could rise up again here between now and May.” He said other significant changes in the budget proposal could also be forthcoming. “It’s such a long process,” Golden agreed. “We’re holding our breath.” Van Etten said the league hasn’t yet taken a position on the budget proposal. “We’ll work with our GRC (government relations committee),” he said. “They haven’t really said whether they’re supportive of that. They’ll look at the growth in the industry and the increasing complexity of some of the products and services and some of the new laws on the books and see if they warrant the new positions or not, then we’ll have an official position on the budget.” -

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