Arnold the Taxmanian

In the Schwarzenegger sequence of things, workers’-compensation reform comes next after Propositions 57 and 58 and before the budget. Each is contingent upon the other.

Despite his posturing, Schwarzenegger doesn’t really want to do a workers’-comp initiative. Waiting till November delays the benefit to the ailing economy for nearly a year. And he might lose. It’s complicated stuff. It’s not entirely clear what those TV ads look like. But he has to brandish the threat to get movement in the Legislature. Schwarzenegger tells me, “I am very confident on workers’ comp. We will have a deal.”

Republican legislators are uneasy, despite their public celebrations. They didn’t really get what they wanted with Propositions 57 and 58. They saw how Schwarzenegger gave in on the mentally disabled. Some are worried that he won’t be tough in negotiations on workers’-comp legislation. The stronger the deal he gets on workers’ comp, says one ranking Republican, the less they will scream at whatever he does on the budget.

Schwarzenegger insists he will get a strong deal in the Legislature. Even though a workers’-comp initiative would be a tough challenge for him, there are good political reasons for Democrats to deal. Some Republicans want a workers’-comp initiative to drain off big Democratic money from competitive legislative races. Indeed, the trial lawyers might put all their money into defeating the initiative. And labor has to defend against the Chamber of Commerce’s initiative drive to repeal Senate President Pro Tem John Burton’s landmark SB 2, which mandates that businesses with more than 20 employees provide health insurance.

Sensing diverging priorities in Democratic ranks, Senate Republican Leader Jim Brulte and other Republicans are urging Schwarzenegger to make transportation projects the top priority for any new state revenues discovered in the May revision of the budget forecast, a sweetener for building-trades unions helpful in workers’-comp negotiations.

There are other contingent factors. There will probably be one large tax increase that is not temporary. On the Indian casinos. Word is that the negotiations are going well. So the new revenue from the casino tribes and the overall state-revenue picture are important contingencies. At the moment, state revenues look to be running below expectations, contrary to what Arduin told me. A tax amnesty is on the table that could raise hundreds of millions. Another factor is how well contract negotiations with the prison guards and other state employees go. Despite what the guards have said, they are feeling the heat on several fronts and are dealing. But the atmospherics on those negotiations don’t seem as positive as those with the casino tribes.

While the budget deficit is close to $15 billion, the ultimate problem may be nowhere near that large. Between very possible reductions in spending for local government, transit, K-12 education, higher education and prisons, plus partial borrowing for pensions, some new revenue from Indian casinos and a few billion from the deficit bonds, the problem looks more like $6 billion. There the going gets tough, with bloodier cuts in health and welfare.

Brulte, whose threat of retribution against any Republican who voted for a tax increase did much to destabilize Davis’ governorship, is not nearly so militant this year. He’s optimistic about a legislative deal on workers’-compensation reform, which he prefers to talk about, although he does say he believes the budget can be balanced without any tax increases.

A key Schwarzenegger ally, Brulte is termed out of office after this year and will turn over the party-leadership post in a few months to Orange County Senator Dick Ackerman, who repeats the party line about no new taxes and says he doubts the budget will be done early as Schwarzenegger would like.

The Republicans’ line in the sand against any tax increase may be eroded by winds of change. Indeed, Senator Bruce McPherson, the party’s 2002 nominee for lieutenant governor, has already voted for a tax increase on transnational corporations pushed by Treasurer Phil Angelides. New Assembly Republican Leader Kevin McCarthy backs a depreciation schedule on the vehicle-license fee that could be construed as a tax increase. The open-primary initiative, which would enable centrists to do better in legislative races, is also a factor for Republicans contemplating tax increases.

In this situation of many scenarios, here is one that is set: It will be a while before it gets any simpler.