The new governor’s days as a keeper of promises officially ended with last week’s release of his proposed state budget. At last, Arnold Schwarzenegger had to reveal his choices among the ridiculously contradictory campaign pledges that helped him get elected.

Fundamentally, Schwarzenegger had to choose between cutting services, raising taxes or some combination of the two to close a $15 billion budget deficit next year. For the moment at least, he’s dismissed raising taxes, choosing instead to trim programs and also to impose new fees on the old, young, sick and poor. His proposed $99 billion budget also relies on new borrowing, money transfers, speculative savings and one-time revenues — all in hopes that an improving economy and a more efficient state government will forestall deeper, more painful future cuts.

The denouement was predictable, because something had to give. “You’ve got to go after the programs where the money is,” said Lawrence McQuillan of the San Francisco–based Pacific Research Institute for Public Policy. “You have to go after health and welfare and education. There’s no alternative.” McQuillan’s organization, which champions free markets and limited government, gave Schwarzenegger an “A+,” mainly because the governor rejected new taxes. Just as he had pledged during the campaign.

But the budget unveiling still made for a jarring departure from much of the rest of the campaign script. Candidate Schwarzenegger had said that he wouldn’t cut education, that he wouldn’t burden the weak, and that he wouldn’t divert money from city and county coffers. He also said he’d cut the car tax and quickly ferret out the “billions and billions” in “waste, fraud and abuse” that other politicians had somehow overlooked for so long. And along the way, he’d cure the state deficit, then tear up the state’s credit card, so California would never again spend more that it had.

Why stop there? At that rate, Schwarzenegger could have pledged to cure the common cold or to ease the heartbreak of psoriasis.

And indeed, at first, newcomer Schwarzenegger swooped in like Reese Witherspoon’s airhead heroine in Legally Blonde 2, who used moxie, underrated intellect and that proverbial heart of gold to overpower overnight a legislature full of jaded, partisan and spent public servants. True to script, Schwarzenegger slew the car-tax increase, and stared down lawmakers till they shredded a new law that would have given illegal immigrants the right to drive. The screenplay for Arnold’s California adventure was right on schedule. It could have debuted in theaters as Legally Austrian or Prometheus Musclebound.

But the car-tax reduction also blew a new,
$6.6 billion hole in the state budget over this year and next. It also began to establish the new administration’s priorities — one that put car buyers ahead of other Californians, even if it pains Schwarzenegger’s inner-Clinton to know that, for example, his budget would apparently deny health-care subsidies that were previously available to children with cancer.


Schwarzenegger showed no evidence of pain or strain during Friday’s speech and press conference in Sacramento. His impish grin seemed almost embedded as he chided an Austrian female reporter for invoking the violent metaphor of “blowing up boxes” when asking about plans for budget reform. (At least he didn’t jest about stuffing her head in a toilet.) He then complimented a male reporter for being “really decked out.” And he glowingly implored photographers to shoot his picture while holding a chart that demonstrated how the state has overspent. He bathed in the spotlight, never failing to be likable. He groped no one. And to all appearances, much of the amassed media fell under his spell.

It therefore would have seemed almost churlish to point out his misstatement about the Healthy Families programs. When the governor talked of adding coverage for 20,000 children a year, he didn’t add that 20,000 other children would have to exit first. That’s because his proposed budget enrolls new clients only when children drop out or lose eligibility. Finance Department spokesman H.D. Palmer corrected the statement this week in a radio interview, while also defending the governor’s approach, noting that a heartless Terminator could have killed the program or reduced funding to past lower levels. “Do you turn back the clock to where [Healthy Families] was five years ago, before the expansion occurred? If you did that, you’d have to throw 180,000 children off the rolls, and the governor wasn’t about to go there.” Never mind that Schwarzenegger promised to enlarge Healthy Families during the campaign and criticized Gray Davis for not expanding it enough.

Nor did the governor mention that his budget would reduce the monthly welfare payment for a family of three in Los Angeles from $704 to $669. But he did offer that “We need to ask everyone to tighten their belt and make some sacrifices” in the next two years. This would include working-class community-college students. Less than a year ago, their classes cost $11 per unit. The unit cost rose to $18 last year under Governor Davis and now would climb to $26 per unit under California’s own compassionate conservative. That’s an increase of
136 percent in all.

Yet the governor ruled out a tax increase, even for the wealthiest Californians, saying “that’s not really enough,” that such a tax would raise only
$1.25 billion, maybe $1.5 billion at most — though some economists have challenged his figure as a low-ball estimate. “I’d rather go the more creative way rather than the traditional way,” said Schwarzenegger. “The bottom line is, I am a strong believer that increasing taxes will hurt our economy. Otherwise, I would go and increase taxes . . . We’ve got to bring jobs back. We’ve got to bring companies back. That will create revenue and then we have money to pay for the programs.”

The governor’s reasoning for not raising tax rates — even temporarily — on the wealthy drew a sharp rebuke from State Treasurer Phil Angelides, a Democrat. “Cutting universities by several hundred million dollars didn’t solve all the problem either, but he did it,” said Angelides to reporters during a conference call. Angelides characterized the budget as unfair and unbalanced. “The company with the phony Bermuda address is not scathed by this budget.”


Schwarzenegger will need all his charm and skill — not to mention good lawyers — to pull off much of his proposal. For starters, he’s projected nearly $1 billion in savings via a form of Medi-Cal cost reductions that a lower court has ruled illegal. Ditto for his plan to borrow $950 million to cover payments owed to the state’s pension fund.

Schwarzenegger’s budget also includes hoped-for financial concessions from the prison-guards union and the cash-rich tribes that operate casinos. And maybe he can get them, given what he pulled off last week by getting the education establishment to accept a $2 billion to $3 billion trim that virtually eliminates per-pupil funding increases. The California Teachers Association and its allies could have proved to be powerful and persuasive critics of the Republican governor’s agenda. Instead, they signed off and withdrew to the sidelines before the trench war even started. “I am pleased with this compromise,” said union president Barbara Kerr in a radio interview. “The schools were entitled to $2 billion more than we received, [but] just because we’re entitled doesn’t mean we would have gotten anything.”

The new governor was not so deft with cities and counties. Their roller coaster began with the slashing of the car tax, which was being used to fund local governments. The governor theatrically “restored” these lost funds late last month — city officials praised Schwarzenegger for keeping his word. But now the just-released budget takes
40 percent of that money away all over again.

“It’s outrageous,” fumed Los Angeles County Supervisor Zev Yaroslavsky. “This is what Pete Wilson did. This is what Governor Davis did.” The county would lose $350 million. “It cannot be allowed to stand. It’s essentially a declaration of war on cities and counties.”

This war will play out over the next six months in the Legislature and in the court of public opinion. A key early hurdle for Schwarzenegger will be his $15 billion deficit-bond proposal on the March ballot. Most of that money would consolidate past debt, but about $3 billion could go to next year’s budget — even though Schwarzenegger had pledged that the government wouldn’t borrow more money after this year. To make matters worse, the nonpartisan Legislative Analyst’s Office concluded this week that the governor’s staff had undershot its own balanced-budget target by $6 billion. Team Arnold hopes that the debt picture will improve as the crew led by Finance Director Donna Arduin labors to uncover waste-fraud-and-abuse.

And yes, there’s waste-fraud-and-abuse out there. Even the governor’s critics, such as Angelides, find common cause with the goal of a more efficient, more cost-effective government. But early on, they also pointed out that such efforts take time and commitment, something that Schwarzenegger implicitly acknowledged last week when he spoke of setting up a long-running commission — whose job will include eliminating some long-running commissions. Like a lot of things, ending waste-fraud-and-abuse seemed like such low, pluckable fruit when Schwarzenegger was a candidate making promises.

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