SACRAMENTO, Calif. - Despite some $4.6 billion in cuts proposedby California Gov. Arnold Schwarzenegger in his 2004-2005 budget,the state's Department of Financial Institutions (DFI) came awaywith an increase in both funding and personnel. Schwarzenegger's$99.1 billion spending plan calls for an increase of $1.9 millionand 20.9 additional employees for DFI, whose responsibilitiesinclude overseeing banks and credit unions. The increase, accordingto state officials, is primarily to implement provisions of SB1,the state's sweeping financial privacy legislation passed last yearby the Legislature. Nine of the new DFI hires would be dedicated tocarrying out provisions of the privacy act, according to AlanaGolden, a DFI spokesperson. Three of the nine would be assigned tothe credit union division, she said. Funding for DFI, which lastyear operated on a budget of $20.5 million, comes from so-called"special" funding raised through assessments of the institutionsthe department licenses. Of Schwarzenegger's total $99.1 billionbudget, special funds overall totaled $21.4 billion. The generalfund budget was $76 billion, with another $1.9 billion in bondfunds. The budget is expected to undergo significant changes as itwends its way through the state legislature. It is supposed to beapproved by midnight June 15, but has in past years gone wellbeyond that deadline. The state's fiscal year begins July 1. TheRepublican governor's proposed budget, which includes no taxincreases but includes various fee hikes including as much as 40%increase in tuition for college and university students, facestough going in the Democratic-controlled legislature. SenatePresident John Burton has decried the budget, saying it hitshardest at the most state's most vulnerable residents. "What wehave in this budget is the poorest people in our society - theelderly, the blind, the disabled, poor women with children, sickchildren, sick elderly - being asked to pay for basically the VLFtax cut," Burton said, referring to Schwarzenegger's repeal of thestate's vehicle license fee when he took office in November. "I seea state that is turning its back on the most vulnerable in oursociety in order to pay for a tax cut." Further complicating thebudget is a planned March 15 statewide vote, in which residentswill be asked to approve a $15 billion bond issue to help thecash-strapped state. Schwarzenegger has said the state could facebankruptcy unless the bond is passed, and he warned of dire budgetcutbacks should it be rejected. "A big part of this budget hingeson whether the bond package that this Legislature approved for theballot in March is passed by the voters," said John Van Etten,state legislative lobbyist with the California Credit Union Leaguein Sacramento. "If it's not passed by the voters, we start atsquare one. "It could be a very contentious year," he added. Thestate is facing a budget deficit of $14 billion in the 2004-2005budget. "Never before has California been faced with a fiscalchallenge of such an incredible magnitude," Schwarzenegger said inreleasing 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 intooffice in a recall election that ousted Democratic Gov. Gray Davis,said "easy choices" were made in the budgets over the last twoyears. "Those budgets were shell games, using tricks and gimmicksto put off the hard decisions until after the next election cycle,"he said. Van Etten agreed. "Some of the easier things to do withthe budget to fix the revenue shortfall, those tricks have beenplayed and now there's some significant real cuts proposed here andI don't think they can get around them," he said. Whether DFI willmanage to keep its budget increase and additional employees is justone small part of the budget battle. "In the past, as part ofbringing the overall budget in line and part of meeting theLegislature's mandate for the reduction of state positions theyhave gone into all the special funds," Van Etten said. "Thisproposal 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 werealready there to pay for the majority of the positions. "Eventhough the current budget as of today adds these positions, we haveno way of knowing if we'll actually be able to fill them and ifwe'll even keep these throughout the budget process (because) it'sso early," Golden said. "These funds are there," she added. "Andnow with SB1 and the budget would give us the approval to use thefunds." "There could be very significant revisions to this proposalby May," Van Etten said. "There may be the political pressure againto reduce the number of state employees. That was what in the pasthas led to restrictions of staffing at DFI even though it's aspecial fund. That political pressure could rise up again herebetween now and May." He said other significant changes in thebudget proposal could also be forthcoming. "It's such a longprocess," Golden agreed. "We're holding our breath." Van Etten saidthe league hasn't yet taken a position on the budget proposal."We'll work with our GRC (government relations committee)," hesaid. "They haven't really said whether they're supportive of that.They'll look at the growth in the industry and the increasingcomplexity of some of the products and services and some of the newlaws 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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