Red ink rising: Reform falters as California's new budget slights governor's original agenda

San Diego Union - Tribune ^ | 7/9/06 | Chris Reed

[NormsRevenge]

Arnold Schwarzenegger probably has stunk up his Sacramento smoking tent with more than a few celebratory cigars of late. Nine months ago, after a special election wipeout with few parallels in U.S. history, the governor looked like a political shooting star whose time had quickly come and gone. Nowadays, basking in the on-time passage of a generally lauded state budget and facing a charisma-challenged Democratic opponent with big weaknesses on both taxes and the environment, Schwarzenegger appears on a clear path to re-election.

Hold your cheers. The conventional wisdom – sure, he punted on addressing that pesky structural deficit for another year, but if the state's economy keeps booming, it will disappear – is wrong. So is the reporting shorthand that describes the current budget as balanced and next year's budget as facing a $3.5 billion shortfall.

Boiling the budget down to its basics – i.e., not counting leftover funds or treating debt repayment as regular spending – the fact is that in 2006-07, the state will spend $4 billion more than it takes in. And if we had the sort of honest accounting that we expect of well-run corporations, the state's structural deficit this year and as far as the eye can see would be at least $9 billion – largely because of a problem most voters have never heard of and almost no politician wants to address.

Still think that Arnold's political rebound suggests the state as a whole is on the rebound?

What's particularly appalling is that in this budget – thanks to a stunning $7.5 billion surge in revenue – the state could have gone a long way toward preparing itself for the storms ahead. Instead, the opportunity was wasted by a governor so damaged by his doomed crusade to use initiatives to make over a dysfunctional state that he believed he had to jettison many of his principles to hang onto office.

“This was the year to balance the budget. We could have done it,” says Assemblyman Keith Richman, the Northridge Republican whose candor about the state's fiscal irresponsibility has led the Schwarzenegger administration and fellow lawmakers to treat him like the skunk at a picnic.

We could use a few thousand more skunks in Sacramento.

“Reagan felt the power of ideas ... Arnold felt the power of himself.”

– A Schwarzenegger political operative quoted in “Fantastic: The Life of Arnold Schwarzenegger,” the unauthorized 2005 biography by Laurence Leamer

Lots of politicians shift course after a rough patch. But few have ever done it as abruptly, completely and unapologetically as Schwarzenegger.

In just a few weeks last winter, the governor:

went from backing a hard-line reformer as state prisons chief to giving the powerful prison guards union de facto control of the corrupt, out-of-control corrections system.

went from demanding changes in teacher tenure and ridiculing the idea that school quality was directly related to school spending to climbing in bed with the California Teachers Association. The just-approved 2006-07 budget includes by far the largest single-year increase in state education spending in U.S. history, and the 10 percent hike was not tied to a single reform.

went from fighting for an initiative with tough limits on state spending to embracing vast new borrowing for infrastructure and a budget in which overall spending increased by 11 percent.

Now for the really bad news: Thanks to a bombshell report in February by the Legislative Analyst's Office dealing with the cost of medical care for current and future public employee retirees, partisan carping over how to tackle the state's structural deficit has a can't-see-the-forest-for-the-trees quality.

The long-term cost of public employee pensions has been discussed for years. Schwarzenegger and other GOP lawmakers have called for a change to 401(k)-type retirement plans or plans with lesser benefits for new employees; Democrats have stonewalled, pleasing their public employee union base. Meanwhile, few voters seem aware that pension bills are already taking a toll on the state budget. This year, state taxpayers will provide nearly $3 billion to make up for California Public Employees' Retirement System shortfalls.

But at least there is a semi-consensus that this a problem that must be resolved. By contrast, no one is talking about state retirees' health care tab. Even though an estimated one-quarter of state employees will retire in the next seven years, the state has no idea how it will pay for their doctors' bills. The Legislative Analyst's Office says the state has unfunded liabilities of from $40 billion to $70 billion – and should immediately start setting aside $6 billion a year (up from the current $1 billion) to make sure these liabilities can be covered. If we had an honest accounting system, any discussion of the structural deficit would include that extra $5 billion. (To put that sum in perspective, the current University of California budget is $3.1 billion.)

So what happens when the pension and health care bills come due over the next few years?

The conventional wisdom often focuses on an either/or choice: either we raise taxes, or we freeze/cut spending, thus taking care of the problem. But it is far more likely we'll be subject to a double whammy of both tax hikes and major program cuts. That's because as gloomy as the paragraphs above have been, they are based on revenue projections in which California's economy continues to thrive.

Booms can't last indefinitely. That's why five times in the past 20 years, state revenue has plunged from previous years. We are one recession away from a true deficit of $15 billion or $20 billion, yet the most powerful people in Sacramento pretend all is well.

So much for the “soft landing” theory. So much for the state's credit rating. So much for the sort of infrastructure and targeted education spending that is considered crucial to California's global competitiveness.

Here's an idea: Why don't Gov. Schwarzenegger, Assembly Speaker Fabian NÚñez and Senate President Don Perata pass a law repealing the business cycle?

“I was born to be a leader. I love the fact that millions of people look up to me.”

– Arnold Schwarzenegger, from an interview with Britain's Loaded magazine

The governor's carefully cultivated image builds off the notion that he is forceful, charismatic and fearless. Ever since the special election debacle, however, that Arnold is AWOL. Maybe it was a myth all along.

“I think Arnold likes to be liked. I don't know that he's going to take on the hard issues,” says a public official who knew Schwarzenegger for years before his first bid for office.

In coming years, the hard issues will be everywhere. For two decades, high-powered commissions have warned of the fiscal devastation that awaits the federal government when baby boomers begin retiring in 2008. The budget problems California faces in coming years are at least as severe, according to Steve Frates of the Rose Institute of State and Local Government, whose pending report for the California Health Care Foundation on the state's unfunded liabilities is likely to be a bombshell on a par with the February Legislative Analyst's Office report.

But you can't deal with a crisis unless you have the courage to admit it exists – and in Sacramento, they're just about all girlie-men now.

Compared with his predecessor – Gray Davis, the gift that keeps on giving – Schwarzenegger obviously has been a big improvement. His anti-tax, anti-regulation stands are crucial to California's future, given the Legislature's incomprehension that hostility to business can destroy the state in an era of globalization and mobile capital.

Schwarzenegger also benefits from any comparison with the Democratic nominee for governor, Phil Angelides, a 1970s throwback tax-and-spender. As Frates notes, “If the governor doesn't get re-elected, any reform is moot.”

But given the challenges California faces in coming years, we don't need a good governor – we need a great one. And unless Schwarzenegger has yet another radical makeover upon securing re-election in November, he won't even come close.

More than ever, California needs an action hero. Instead, our best option appears to be a governor who thinks he's starring in a feel-good fantasy.

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Reed is an editorial writer for the San Diego Union-Tribune.

[calcowgirl]

They are gambling and praying at this point. "There really is no plan ..."

http://www.freerepublic.com/focus/f-news/1662791/posts

Indeed, after signing the new budget last month, Schwarzenegger told a Sacramento television reporter that he had no idea how he was going to balance the budget.

"There really is no plan to end the deficit because you never know what the revenues are next year and you never know what the unusual expenses are of any year," the governor said.

[Czar]

"Schwarzenegger told a Sacramento television reporter that he had no idea how he was going to balance the budget."

Yet, we are told California as we know it will end unless we vote for this cluless loser.

I see no reason to change my mind on no-voting the Austrian.