Dan Walters: Governor complains about autopilot spending but embraces it

Then-Gov. Pete Wilson coined, or at least adopted, the phrase "autopilot spending" in the early 1990s as he struggled to close an immense state budget gap and confronted political and legal barriers that made it nearly impossible to reduce spending even when revenues had plummeted.

Gov. Arnold Schwarzenegger has voiced the same complaints, most recently this week when he proposed a budget for the 2006-07 fiscal year. But an exchange with reporters also underscored that while Schwarzenegger complains about automatic spending, he's also an ardent advocate of it.

At one point, he renewed his pitch for gaining unilateral authority to reduce state spending when revenues fall short of expectations - a power that California governors once had, but that voters last year refused to reinstate. But this year, Schwarzenegger, bowing to the political realities, says he's willing to exempt the largest - by far - category of mandated state spending, Proposition 98 aid to public schools. And even if he had the authority, he added, "There is nothing that will solve the problem other than getting rid of those automatic spending formulas."

That, at least, was semiconsistent with past positions. But moments later a reporter asked him why, if he's complaining about automatic spending, he's also implementing Proposition 49, a measure he sponsored in 2002 before becoming governor to provide state funds to preschool and after-school programs that will cost about a half-billion dollars in its first year.

Proposition 49 requires the state to begin allocating money after the budget reaches a certain level of spending, an automatic trigger that is being pulled in 2006-07. Schwarzenegger insisted that Proposition 49 "was done in the most responsible way" because it didn't go into effect immediately and thus, he claimed, isn't "crowding out other programs," but that doesn't change the simple fact

http://www.sacbee.com/content/politics/story/14068317p-14899089c.html

Governor affirms after-school plan
He won't agree to any changes in the program that he set up with a 2002 ballot measure.

Herbert A. Sample
Sacramento Bee
January 13, 2006

FREMONT - Gov. Arnold Schwarzenegger said Thursday he opposes any change in the after-school program initiative he championed, saying he would not support asking voters to delay or reduce state funding mandated by Proposition 49.

Schwarzenegger, standing on an unpaved offramp that is part of a highway construction project, said voters who approved the ballot measure in 2002 were aware of the importance of after-school programs and that their decision should be respected.

"I believe very strongly when the people vote on something, that's then it," the governor said. "The Legislature should not undo what the people have voted for."

Schwarzenegger was the chief sponsor of Proposition 49, whose funding requirements will first kick in with the 2006-07 fiscal year, now that the state's revenue picture has brightened. Thus, the proposed budget unveiled by the Republican governor on Tuesday included $428 million for after-school programs.

But both Democratic and Republican lawmakers - as well as the nonpartisan legislative analyst - have suggested that the Legislature sponsor a measure on the June ballot that would delay the proposition's implementation or allow more flexibility in how much money must be spent on such programs.

Asked if he would consider either alternative, Schwarzenegger said, "Well, no." He defended after-school programs, saying they give children something to do on weekday afternoons instead of getting involved with gangs, guns, alcohol and sex.

"Every dollar we put into after-school programs, we save three dollars," he added. "So that's why it would be foolish to undo that."

Asked if he would support nothing less than full funding of Proposition 49 programs, the governor replied, "Well, I don't have to support it. I mean, the people have supported it already, so now it is in the budget. It automatically kicks in."

(snip)

Do you recall this paragraph under Fig 3?

The 2004-05 fiscal year concluded with a reserve of $9.1 billion. The reserve amount is up sharply from the $7.5 billion estimate included in the 2005-06 Budget Act, and is $1 billion more than the amount assumed in our November forecast. This improvement from both of the previous estimates is due mainly to large upward revisions to year-end revenue accruals to the corporation tax and personal income tax. More generally, the large 2004-05 reserve is a reflection of strong amnesty payments received last year, and includes the proceeds of the deficit-financing bonds issued in 2003-04.

Basically it says that the numbers for 2004-2005 are up because of increased collections in 2005-2006 which were subject to retroactive accrual (collected now, but considered collected then). The report goes on ho explain that these "windfall" revenues were generated on advice from the alleged debtor's legal counsel, as an "insurance plan" to cover their bases and refunds are highly likely.

The 2005-06 Budget Act assumed that last year’s tax amnesty program generated $3.8 billion in combined personal income tax and corporation tax receipts. Under the state’s accounting system, these receipts were accrued back to 2003-04 and prior years, and reflected as an increase in the state’s 2004-05 carry-in balance. The budget also assumed that, since most of the amnesty-related revenues were associated with so-called “protective claims” payments on audit issues that had already been identified, all but $380 million would be offset by lower net audit collections in 2004-05 through 2006-06. The updated forecast continues to assume that all but $380 million will eventually be “given back.” However, the new estimate assumes that it will take longer for these offsets to occur. Instead of all the offsets occurring by the end of 2006-07, the new forecast assumes that $920 million will occur in 2007-08 and later years.

So what does all this accounting mishmash have to do with Prop 49? The answer is everything.

Prop 49 is "triggered" under specific circumstances that ostensibly equate to improved financial conditions. One problem, however, is that this trigger can be manipulated. Schwarzenegger has, as pointed out by the LAO, manipulated the trigger.

Specifically, and briefly, Prop 49 funding is triggered if key programs receive more than a $1.5B increase in funding from one fiscal year to the next. That increase will occur in the Schwarzenegger's proposed 2006-2007 budget. Unfortunately, as the LAO has pointed out, those proposed increases in the key programs are justified by questionable calculations of revenue increases by Schwarzenegger's proposal.

The LAO (and others) is diplomatically suggesting that implementation of Prop 49 funding be delayed, using the plausible excuse of structural deficits, rather than directly confronting Schwarzenegger's gimmicks. The LAO is walking a fine line but is making her point for those who care to listen.

I appreciate that the revelation of this paradox is tedious and technically boring but I hope it helps you better understand the shenanigans Schwarzenegger is utilizing to get his "baby" into action.

Funny how the media and others tout this as "surging revenues."

That also has me curious. The media is the sworn enemy of the Republican Party in California. They have no philosophical motive to sustain Schwarzenegger.

References to a "surging revenues" can't, by even a third grade intellect, be attributed to the Democrat Legislature. Any positive bump, if the inferences were true, and they aren't, would go the the administration by default and tradition. So why the inflated hype? I'm puzzled....

Of course the reporters could simply be stupid, a known trait of liberals.

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