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George Passantino

George Passantino is Director of Government Affairs for the Reason Foundation and coauthor of "Roadmap to Reform."

Arnold Targets the Budget Crisis
The Governor has a plan...
[George Passantino] 1/26/04

Gov. Arnold Schwarzenegger is pressing forward with an ambitious “100-day plan” to reform California state government, and it’s clear that the state’s lingering budget crisis is at the top of his to-do list. Of the plan’s ten points (see below), nine have direct implications on the state budget. Only the successful effort to repeal driver’s licenses for illegal immigrants is not budget-centered.

California’s budget has been plagued with legal challenges and criticized by Republicans and Democrats alike. It was only able to clear a polarized legislature after most of the shortfall was made up through borrowing (more than $16 billion) and another $7 billion in accounting maneuvers, deferrals and unfunded mandates.

Some key pieces of the current budget are in jeopardy, including $500 million in deferred payments to the state teacher retirement system (which faces pending litigation). And Schwarzenegger has already made good on his promise to roll back the tripling of the vehicle license fee.

In September, the delicately balanced document suffered a major legal setback when a Sacramento Superior Court Judge sided with the Howard Jarvis Taxpayer’s Association and ruled that it was unconstitutional for the state to borrow $2 billion to cover its pension obligations. The court found that the bond never received a vote of the people, as Article XVI of the California State Constitution requires. While the state has appealed the decision, it is unclear if the new governor will support the appeal.

Arnold’s Plan
Step 1: Repeal tripling of car tax
Step 2: Freeze spending and audit
state budget
Step 3: Call special session on spending
cuts to address current imbalance
Step 4: Get fair share of Indian
gambling revenue
Step 5: Renegotiate state employee
union contracts
Step 6: Pass jobs package with real workers’
compensation reform
Step 7: Submit ‘04-05 budget that closes deficit and restructures
inherited debt.
Step 8: Streamline bureaucracy and send more money to the
Step 9: Repeal SB 60, which gives driver’s licenses to illegal
Step 10: Pass open government amendment and limit fundraising
during budget process
The most formidable challenge of all may still emerge. If the courts apply the same legal argument to the state’s $10.7 billion “deficit bond” that they applied to the pension obligation bond, the deficit bond may be struck down as well. Even if courts uphold the various bond issues that undergird the 2003-2004 budget, a projected $8 billion deficit looms over next year’s budget. Some budget experts estimate that by January, the new governor may confront a combined deficit of more than $20 billion.

What may be most intriguing about the Schwarzenegger plan is how boldly it confronts many different politically powerful forces, from Indian tribes to the legislature itself. Legislators will likely be unhappy by Schwarzenegger’s plans to bring the legislature back for a special session to remedy the current year’s budget.

Issues that were considered “resolved” this year—such as previously rejected spending reductions and tax increases— might well land back on the negotiation table.

Schwarzenegger also plans to go beyond the legislature to confront one of the most politically powerful institutions in Sacramento, public employee unions. While the current budget anticipated more than $1 billion in personnel savings through layoffs or contract renegotiations, the Davis administration has had difficulty achieving savings thus far. Efforts by Schwarzenegger to increase the amount of savings through renegotiation will run into stiff resistance from state employee unions and their supporters in the legislature.

The big unknown seems to be what influence Schwarzenegger’s ability to communicate with the public will have on the budget debate. Whereas Governor Davis had difficulties connecting with the public and effectively leveraging public support to achieve his policy goals, Schwarzenegger possesses both the resources and persona to wage policy debates in the court of public opinion or at the ballot box if necessary. This will mark a significant shift in leadership style and one that may well carry his policy agenda over the finish line.

“The fact that he has said he will go around legislators directly to the people gives him a great amount of clout,” said Elizabeth Garrett, a political science professor at the University of Southern California, quoted in the Los Angeles Times on October 14th. “It takes more time, but it’s a useful threat and fulfills his promise of governing for the people.”

This editorial originally appeared in Reason Foundation's Privatization Watch

copyright 2004 Reason Foundation


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