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The State Budget Gap: Governor Stuck In A Partisan Divide

By Mark Baldassare, research director, Public Policy Institute of California
This opinion article appeared in the San Diego Union-Tribune on July 15, 2004

If there's one lesson that Gov. Arnold Schwarzenegger has learned in the last month, it's that the more things change, the more they stay the same. After all, things couldn't seem more different: 64 percent of Californians currently approve of the way Schwarzenegger is handling his gubernatorial duties while, just one year ago, 64 percent disapproved of then-Gov. Gray Davis' performance. But despite his tremendous popularity with the public, the governor is finding out that delivering "action, action, action" is easier done in Hollywood than in the chronic quagmire of fiscal politics in Sacramento.

Just a few weeks ago, it seemed all but certain that the governor had made enough progress in his months of tough negotiations with some of the main recipients of state spending to patch together a budget compromise that would get the required two-thirds majority support of the Legislature. Passing a budget on time? "No problema" for the new governor. He was coming off an impressive number of early victories, including convincing a skeptical public that his fiscal remedy of $15 billion in bonds and future borrowing limits would cure the state's fiscal ills.

However, as predictable as the summer heat in Sacramento, all this hard work began to unravel as partisans took sides on a promise to local governments that their funding would be cut for two years but protected in the future. With each party sensing some political advantage in the coming November elections, Republicans went along with future funding guarantees for cities and counties, and Democrats refused to make promises to local governments that might jeopardize the future budgets of schools, health and social services. And so, the brief era of good will between the governor and Legislature came to an end, and the blame game began.

In reality, the governor's chances of getting around the partisan divide were probably sunk even before this recent impasse, when members of both parties fully realized that this budget, like the last governor's, was simply postponing the day of reckoning over the mismatch between spending and tax receipts. The independent Legislative Analyst's Office says there will be a chronic budget gap of $6 billion in fiscal year 2005-06 and every year into the foreseeable future if the governor's budget passes.

So unless there is a dramatic increase in economic growth, tax increases or spending cuts will have to be on the table when Schwarzenegger's spending promises kick in a year or two from now. Alternatively, the Legislature will decide to pile up even more debt and push the problem even further into the future the odds-on favorite for how the current budget standoff will end.

Why is it so difficult for the Legislature to pass a budget? Some experts point to the two-thirds vote hurdle for passing a state budget, but the fact is that there were no delays when times were rosy a few years back. Simply put, when times are tough political interests retrench, and the budget process reflects this reality. For Republicans, the answer is to cut spending. For Democrats, the answer is to increase taxes. For both sides, finding their way to the middle ground is unpopular in an increasingly partisan environment.

In a few months, the voters will get their turn at the wheel when they are asked to make fiscal policy at the November ballot box. Among the panoply of 14 state measures are a tax on incomes of over $1 million to fund mental health services (Proposition 63), an initiative to protect local government funding from state raids (Proposition 65), an initiative to fund emergency medical services with a telephone surcharge (Proposition 67), and initiatives to expand non-Indian gaming (Proposition 68) and Indian gaming (Proposition 70).

Where does the public stand on the fiscal issues confronting the state? Like the elected officials representing them in Sacramento, Californians are deeply divided along partisan lines. Half of state residents say they prefer to pay lower taxes and have fewer services, while half want higher taxes and more services.

Republicans overwhelmingly want a smaller government, while Democrats strongly favor a larger government. Like the Legislature, voters remain skeptical of the need to make cuts in their most favorite programs, arguing that government waste is so great that the state could spend less and provide the same level of services.

The governor's biggest hope of bridging the partisan divide may be the California Performance Review he is unveiling in the coming months. This exercise promises, in Schwarzenegger's words, to "blow up the boxes" and find ways to make government more responsive, effective and efficient. What's at stake is whether or not Schwarzenegger can make good on his promise to restore trust among voters who are deeply skeptical of state government. Without it, current and future talks on revenue and spending reforms will inevitably fall on deaf ears.

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PPIC Statewide Survey: Special Survey on the California State Budget, May 2004

PPIC Statewide Survey: February 2004

Just the Facts: California's State Budget