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Whoever Is Unlucky Enough to Win Governorship Faces Ugly, Worsening Budget Mess


Thursday, June 10, 2010

When Arnold Schwarzenegger was elected California’s 38th governor in 2003, he vowed not to accept the $175,000-a-year salary that then went with the position.

So far, he’s been worth every penny.

Schwarzenegger’s failure to fix the state’s chronic fiscal mess, deepened by Sacramento’s dysfunction and the worst recession in decades, means that whoever becomes the 39th governor will inherit a bewildering tangle of intractable political and economic problems that will dwarf whatever campaign hooey gets slung over the next five months.

Jerry Brown, the newly anointed Democratic nominee for governor, to date has uttered not a single specific proposal for addressing the issue (short of hosting can’t-we-all-just-get-along soirées at the Governor’s Mansion for lawmakers of both parties), while Republican Meg Whitman has claimed with a straight face that she can cut $15 billion of “waste, fraud, and abuse” from the budget (a hoary bromide that’s been trotted out by every GOP candidate since Ronald Reagan, to stunningly little effect).

Regardless of what evasions and downright lies the rivals offer up between now and November 2, the outlines and dimension of the vast ocean of red ink one of them will have to navigate have already taken shape, as the incumbent chief executive and Legislature begin gearing up for what will surely be the latest, months-long budget war of attrition, for the fiscal year that begins July 1.

“This year’s budget situation may prove to be the most difficult in recent years,” nonpartisan legislative analyst Mac Taylor reported in his most recent, neutrally worded forecast. “The two basic avenues to balancing this budget — sharply lower spending in some programs and higher revenues — each result in negative consequences for the economy, jobs, and the Californians most directly affected.”

Here’s how things stand:

• The state faces a $19.1-billion gap between expenditures currently required by law and projected tax collections, from now until June 30, 2011; the $85 billion in expenditures calculated in that equation would set spending at its lowest level since 1995, although the state’s population has increased by about seven million people in that period, according to the Department of Finance.

• California will have to deal with similar, multi-billion-dollar deficits each year for at least the next five years, Taylor said.

• The government’s $19-billion shortfall could prove a best-case scenario, as Congress last week unexpectedly cut a $24-billion Medicaid payment to states across the nation, promised as part of the stimulus package, that could blow another $2-billion hole in California’s spending plan.

As a practical matter, these circumstances all but guarantee that services for those suffering the most in the current economy will be cut further, at a time when California’s unemployment rate has increased to 12.6 percent, far above the national average, and the state is lagging most of the rest of the country in recovering from the recession.

Amid that economic landscape, Capitol leaders have set forth three very different strategies for dealing with the mess:

• Schwarzenegger’s latest plan consists almost entirely of cuts, including reductions in funding for public schools of $4.3 billion, elimination of subsidized child care and of the CalWORKS welfare-to-work program offering support and job training to the chronically unemployed.

Darrell Steinberg

• Senate leader Darrell Steinberg has proposed a solution based heavily on new revenue, including a $5-billion plan to delay corporate tax cuts approved as part of an earlier budget deal, raising the car tax, and keeping in place an income tax increase for wealthy Californians.

• Assembly Speaker John Pérez has put forth a proposal largely reliant on borrowing, a complex financial scheme to use California’s recycling fund as an asset to sell bonds securing billions in new loans, that also would require a new oil severance tax in order to work.

The three distinct financial approaches — cuts, tax increases, and huge new borrowing — underscore the challenge of solving the political calculus requiring majority Democrats to win at least two Republican votes in the Senate and four in the Assembly for the two-thirds vote needed to pass a budget; the possibilities for a compromise that overcomes the anti-tax ideology of GOP lawmakers are only slightly better than the chances of a mass study session breaking out on Isla Vista’s streets on Friday night.

So whatever facile political solutions Brown and Whitman propose, the bottom line in seeking a policy solution is captured in an epigram compounded by legendary actor Errol Flynn about his own finances:

“My problem,” Flynn famously said, “lies in reconciling my gross habits with my net income.”

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