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An ugly, temporary answer to California's intractable budget problems

Posted 13 years 140 days ago ago by   

Los Angeles Times October 10, 2010

It was another prolonged Sacramento production, full of bickering, posturing and inaction that led to the latest state budget in modern history and provided a convenient target for the gubernatorial candidates, who say things would be different if they were in charge.

One of them will be put to the test come January, when California starts the exercise all over again. Gov. Arnold Schwarzenegger and the current crop of lawmakers are leaving much of the $19-billion deficit for either GOP nominee Meg Whitman or her Democratic rival, Jerry Brown.

The most optimistic projections show that the spending plan Schwarzenegger signed Friday will produce a shortfall of at least $10 billion — more than 11% of state spending — in the next fiscal year. Many experts predict it will be billions more. The leaders mostly papered over this year's gap, punting many tough decisions forward.

The failure of lawmakers, again, to set the state on firm financial footing highlights Sacramento's dysfunction. But it is also a reflection of a state in which the economy has been sour so long, and revenue has dwindled so much, that there are few places left to cut spending.

Broad tax increases have already been put in place, and more are not politically viable. Complicating the problem are the public's expectations of what government can accomplish with the state's shriveled tax base.

"We're going in the wrong direction fast, " said Bob Hertzberg, a former Assembly speaker who co-chairs the nonpartisan think tank California Forward. "There is a big pile of work waiting on the desk of whoever is governor next. But I don't think the outcome will be any different" from this year no matter who is elected, he said, "because the demands are so difficult."

All the problems that have haunted the budget process for years were in full force this time around, many of them more pronounced than ever. The state's volatile tax system — which economists have consistently warned is too reliant on the fortunes of the wealthy — caused revenues to continue dropping. The lack of a substantial rainy-day fund left the state without emergency reserves to blunt the blow.

Term limits ensured that relative novices had significant control over the complicated and politically charged task of negotiating a budget. The Assembly speaker and minority leader, whose most important job is to help hammer out a spending plan, had never been involved in budget talks before. And none of the legislative leaders has the kind of clout over their caucuses that their counterparts had in days past, making compromise and the necessary two-thirds vote of the Legislature much tougher to come by.

The governor's lame-duck status hurt his already limited ability to move things forward. So did his chilly relationship with his own political party, which undermined any power he might have had to pressure Republicans to work more purposefully toward a bipartisan agreement.

The public was largely cut out of the process, along with the legislative rank and file. The influence of special interests loomed large, with the biggest ones able to persuade — or bully — some lawmakers into rallying their colleagues behind untenable demands, prolonging the stalemate.

Schwarzenegger administration officials say there is a silver lining. They point to concessions made by unions that roll back some of the generous pension benefits state employees have received over the last decade. New hires will get more modest retirement benefits, limiting the contributions taxpayers must make to keep the pension fund solvent.

The budget package also places on the 2012 ballot a measure that would create spending controls to force lawmakers to build a bigger rainy-day fund.

But other budgeting measures, pushed by good-government groups seeking to bring some fiscal stability to California, stalled in the Legislature, beaten back by corporate interests and unions anxious that they could lose influence if the system were too radically changed.

As for the deficit, some say this just wasn't the year to wipe it out. Government services have already been sliced by several rounds of brutal reductions. With revenue continuing to plunge, they say, there's a point at which delaying a deficit solution does less harm to the economy than confronting it.

"In some ways, this is a reasonable ending point," said Jean Ross, executive director of the California Budget Project, a think tank that focuses on how the budget affects low-income residents.

As the sour economy has limited lawmakers' will to take bold action, the public is increasingly confused about what their taxes are paying for and what sacrifices would help bring the state into the black.

In a survey of 1,000 Californians conducted in June by the Pew Center on the States and the Public Policy Institute of California, half of respondents believed state spending could be cut 20% or more with no impact on services. The report points out that the state would have to eliminate the equivalent of its entire prison system, all welfare programs and all transportation spending to save that much.

The authors went to Mike Genest, Schwarzenegger's former budget director, for some perspective.

"Reality hasn't caught up with the voting public," Genest told them. "Politicians have made it sound like there are other alternatives, like we can simply get rid of fraud, waste and abuse and [have] a spending freeze and … have the same kind of government we've always had. … That's just not true."

Susan Urahn, a managing director at the Pew Center, says California's incoming governor, whoever it is, should be under no illusions.

"There will likely be a fairly short honeymoon," she said. "The problems are so significant."

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