Ruling by Referendum

Incoming state Assembly Leader Fabian Núñez (D–Los Angeles) was certainly headed toward acquiescence this week, provided that Schwarzenegger’s team negotiates over details of the bond, the spending cap and proposed midyear budget cuts. For one thing, Núñez wanted the bond reduced to about $11 billion, which would replace Davis’ borrowing with voter-approved bonds, which could qualify for better interest rates. Núñez doesn’t want Schwarzenegger to hide the money lost from the car tax in the bond.

“We’re trying to fix a problem that was created by an election promise,” said Núñez. “The governor wanted to roll back that fee, and he got a political benefit for it. Now he needs to show how he’s going to pay for it. He needs to put that on the table.”

The proposed cuts target some of the neediest Californians, including those in the revamped welfare program, who already face strict time limits for receiving aid. Currently, a CalWORKS grant for a family of three in high-cost counties is $728 per month. The governor’s proposal would reduce this grant to $669, which is less money than this family would have received more than a decade ago, according to research from the nonprofit California Budget Project. The amount would equal only 52.6 percent of the federal poverty level, which is no one’s idea of a generous index. Federal food stamps could make up some of the difference in the short term.

Another proposed cut would eliminate home-care services for 74,000 elderly, blind and disabled persons. “There are some proposals that would certainly contradict things Arnold Schwarzenegger said during the campaign about protecting children and the elderly,” said Jean Ross of the Budget Project. “He made a very strong statement with respect to the Healthy Families program — that he would find kids and sign them up. His midyear reductions would cap enrollment for the program so you couldn’t cover more kids.”

Cuts aside, the Schwarzenegger bond package has similarities to Davis’. Both use substantial borrowing to postpone the pain of additional program cuts — in hopes that the state economy will rebound and grow out of its troubles. They both share the fundamental flaw of failing to deal with a state spending more than it’s taking in, although both governors talked of forthcoming plans for handling that, too.

In the end, Davis borrowed because he couldn’t win over the handful of Republican legislators he needed to raise some taxes, even on a temporary basis, even when combined with program cuts. Schwarzenegger, by contrast, starts in the same place as the Republicans. That is, he opposes tax increases seemingly at all costs. But he too gets to deficit financing as a fallback to avoid steeper program cuts.

Davis chose not to rely on voter approval for deficit financing, which opened the door, under California’s constitution, to court challenges. And litigation has tentatively undone some of his plan. Schwarzenegger won’t face that dilemma if he can win over voters. He’s banking on his popularity and charm — and on calling the financial crisis a Davis fiasco that he inherited. Go with Arnold, he’ll tell voters, and don’t hold the messiness of his fix against him.

Come March, however, voters could easily reject these bonds. If Schwarzenegger then responded by putting a tax increase on the ballot instead, voters could readily spurn that, too. And if he put the “last” alternative, draconian program cuts, on the ballot — well, why would voters go for that either? It might not be the same majority of voters each time. Maybe more Republicans would oppose taxes; maybe more Dems would oppose program cuts. But it’s quite possible that a diverse majority of voters, for varied reasons, will simply refuse to bail out either California or Schwarzenegger.

What then?

The sky will not fall in. The Davis budget deal remains in place. It could survive through June, although something must be done about the $4 billion lost through the car-tax repeal and the state’s structural spending problem. And postponing the cure will only exacerbate the financial hemorrhaging.

Neither the Davis nor Schwarzenegger borrowing schemes will go down as a bargain for taxpayers, said Ross of the Budget Project. “Bonds are usually used for things like building schools, which last for decades,” she said. “This is the equivalent of putting last year’s groceries on your credit card, and then paying them off over 20 to 30 years.”

If voters decide they don’t like that prospect, then Schwarzenegger probably doesn’t have time to go back to voters with another try. The next scheduled statewide election after March is nearly a year from now. “You can’t always govern by litmus test,” said Assembly Leader Núñez. “Bold leadership sometimes requires people to do things that are not the most popular.”