Schwarzenegger's Budget Veto Drama
For anyone paying attention to California’s fiscal fitness, Tuesday was a spectacular day in state political history, as the governor promised the first-ever veto of a state budget that seasoned observers are calling spectacularly irresponsible — even as they note that this budget isn’t much more disastrous than others from Sacramento.
At a Tuesday afternoon appearance at the Capitol, Arnold Schwarzenegger finally said “enough is enough” with regard to California’s chronic budget crisis. Some political wags say that’s what he was elected for — to be the guy who draws the line in the sand. But, in fact, Schwarzenegger’s win over Gray Davis in the 2003 recall election was driven by many impulses, particularly anger over Davis’ handling of the statewide 2001 electric-power crisis.
Even so, Schwarzenegger’s failure to straighten out the state’s finances has been a notable blot on his ledger, and as he said this week, “This is something I have not succeeded at.”
Though that statement was clear, earlier this summer he was even clearer. He acknowledged to me that in his drive to achieve other policy goals, he went along with Democratic spending, which proved unsustainable. Most importantly, he pushed hard for a comprehensive health care program while accepting from the Democratic majority a budget that ignored an ongoing “structural” deficit, about $6 billion of which derives each year from Schwarzenegger’s popular first decision after his inauguration in November 2003: to reduce the highest “car tax” in the nation. But while this has been an unusual failure in Schwarzenegger’s career of multicareers, California’s chronic fiscal crisis, which this week became a national drama, is part of an ongoing failure.
“My mistake was in not following my own advice,” Gray Davis told me earlier this year.
Davis recalled that he knew as early as 1999 that the government should not take on permanent spending obligations it couldn’t afford if and when the fizzing dot-com boom really went bust. But as the riches generated by the last of the boom flowed into state coffers from taxpayers, he went along with Democratic spending and Republican tax cuts — to disastrous effect by 2002.
Davis told me in 1999 that there were too many pent-up demands from Democratic interest groups for him to prudently fulfill. The big-labor leaders who had ferried him around on their leased Gulfstream jets had big wish lists, as did every other Democratic interest group, which felt it had suffered through 16 years of Republican chief executives.
“I didn’t think the dot-com boom” then flooding California’s coffers with revenue “would last,” conceded Davis. Yet he gave in to new Democratic spending and Republican tax cuts, setting up the current crisis.
When he came in as governor after winning in a landslide in 2003, Schwarzenegger stabilized the mess by gaining voter approval of $14 billion in “deficit bonds” Davis and the legislature had devised. Schwarzenegger’s Proposition 57 and Proposition 58, approved by California voters in the 2004 state special election, made the deficit bonds constitutional, ensuring that they couldn’t be undone by legal challenge.
But then, in 2004, Schwarzenegger backed away from a tough state-spending cap, operating in a well-received bipartisan mode with the majority Democrats, who, except for a few years, have controlled the legislature and written the vast majority of the laws since 1958. When I reported that he was behind schedule on “blowing up the boxes” of state bureaucracy, he joked in frustration: “I will blow up the boxes, and you might just end up in one of those boxes.”
In 2005, Schwarzenegger tried to impose limits as part of his “Year of Reform” special-election package. But all four of his initiatives — budget controls, teacher-tenure reform, limits on public-employee-union campaign spending, and reform of the longtime gerrymandering of legislative districts that assures incumbent victories — were dramatically defeated.
Schwarzenegger later decided he had surrounded himself with the wrong team of partisan Republicans and had followed a partisan Republican plan that couldn’t succeed in California, but he still believes “the issues were right, the approach was wrong.”
This summer, he tried to bring the budget beast under control by laying off contingent state employees; refusing to sign all but key bills; issuing an order (sabotaged by Democratic state Controller John Chiang) to temporarily reduce state-employee wages to federal minimum wage; and pushing Democrats to back a rainy-day fund and gubernatorial authority to make cuts during bad times. As he pushed, however, the Republicans refused all new taxes.
Two extraordinarily stubborn opposing political factions and one profound legal quirk are driving all of this: One powerful faction is the ultra-government crowd, mostly the huge, rich public-employee unions and advocates of government expansion, who dominate — and help elect — the legislative Democrats. The other faction is the anti-government conservative ideologues and anti-tax groups, who dominate the legislative Republicans. The legal quirk is the unique requirement that a two-thirds legislative vote pass a budget, which gives the longtime minority Republicans a strong bargaining chip.
This year, Republican legislators insisted on a cuts-only budget. Assembly Republican Leader Mike Villines was vague on what those cuts should be, but said, “We can’t have a tax increase now. Neither on the rich, nor with the sales tax. The economy is too fragile.”
At the time, Villines and former Assembly Speaker Fabian Núñez, the Los Angeles Democrat, were quietly devising a borrowing-and-cuts budget — a retreat from the GOP notion of $15.2 billion in cuts.
In reality, the far right didn’t have the stomach to impose enough cuts, insisting the Democrats support a thinly veiled form of massive borrowing. And that’s what the legislature adopted, 78 days late and under cover of night after voters and much of the media had gone to bed.
The Republicans are insisting on increasing income-tax withholding, meaning that the middle- to upper-income Californians who pay state taxes — if you make less than $50,000 a year, you probably do not pay them — will have a bigger chunk taken away, then get it back as a refund, making this an interest-free loan to state government.
It’s not a lasting solution, but it underscores the hypocritical gimmickry on both sides of the political aisle. Steve Maviglio, the strategist and spokesman for the battered Assembly Democrats, insisted after I broke the news Tuesday on my New West Notes blog that Schwarzenegger would become the first California governor to veto a state budget, that Jerry Brown, now California’s attorney general, had as governor vetoed a budget in 1979 that was overridden by the Democrat majority — a replay of what the legislature now intends to do to Schwarzenegger.
Such a move can’t hurt the legislature, which has a 15 percent approval rating in the new Field Poll and desperately wants credit for passing a budget. But Brown maintained to me that Maviglio is simply wrong. Brown did not veto a state budget but vetoed some big state-employee pay raises and was overridden by the legislature.
Today, “the budget is a mess,” says Brown, front-runner for governor in 2010 if he should run. “It doesn’t solve the structural problems, which are serious and systemic.”
Does he agree that Schwarzenegger should veto this budget? “Hey, I’m the attorney general, which means I’m the governor’s lawyer,” Brown answers. “I’m not getting into the political back-and-forth on this.”
Schwarzenegger says that if the legislature overrides him this week, he will veto “hundreds of bills” in retaliation — a dramatic move that could wipe out many pet Democratic laws among the vast pile of roughly 1,000 new laws legislators send the governor each year. This year, that pile includes an effort by Metro in Los Angeles to put a $40 billion transit-bond measure on the November ballot that raises money via a Los Angeles County sales-tax increase.
The governor’s communications director, Matt David, says the budget approved by legislators turns proposed rainy-day-fund reform into a “slush fund” — for legislators.
Schwarzenegger won’t actually veto it until Friday. He seems finally engaged in confronting an unsustainable budget process. Whether he succeeds, this year or the next, is another story.
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