|Office of the Chancellor / Public Affairs||
Monday, May 10, 2004
Los Angeles Times 5-9-04
On-Time Budget Is Expected
SACRAMENTO — Gov. Arnold Schwarzenegger is on his way to delivering on perhaps his most ambitious campaign promise: a budget without new taxes, signed on time.
But such a budget agreement doesn't signal an end to California's fiscal woes. Many of the deals being made to reach the accord postpone until next year the headache of balancing the books.
To the governor's supporters, it's Schwarzenegger the problem solver at work. But to some critics, it's more budget gimmicks to get through another year.
"It's the same thing we had last year," said Assemblyman Joe Canciamilla (D-Pittsburg), a fiscal moderate who has been working with Republicans on long-term budget reform. "The only difference is, this year, we will be holding hands together as we jump off the cliff.
"We'll be celebrating the great budget deal and an on-time budget," he said. "But we'll still have the basic systemic problems that will lead to a disaster in a year or two."
On Thursday, the governor will release a revised budget plan for the fiscal year that begins July 1. As expected, there will be big program cuts and fee hikes in such areas as healthcare and college tuition, but a major new element will be billions of dollars of savings quietly negotiated by the governor with city officials, educators, court officers and others.
The latest of those deals, involving more cash from Indian tribes, is expected to fall into place by next month. Most of that money is to be earmarked for scores of road projects facing cancellation statewide.
A common thread runs through each of the deals: groups make sacrifices this year in return for promises that they will be protected in coming years.
But the sacrifices they are making this year will help the GOP stick to its pledge not to raise taxes.
That is no comfort to Democrats like Canciamilla, who believe any solution to California's chronic budget problems should involve a modest tax hike.
"I'm not convinced that anyone wants to fix the problem at this point," including Democratic leaders, Canciamilla said.
Democrats certainly aren't beating the drum for new taxes as they have in the recent past. The last thing they want with an important state and national election looming in November, political analysts say, is a drawn-out budget battle with a popular governor.
In a news conference on Thursday, Assembly Speaker Fabian Nuñez (D-Los Angeles) said new taxes were not needed if the governor could scrape up enough money to protect the programs Democrats care about.
And the governor appears to be trying.
Among the revenue-raising measures headed for action are:
• A deal with local governments that would net $1.3 billion for each of the next two years. In return, the governor would support a constitutional amendment guaranteeing that the share of state tax revenue that goes to cities and counties would not be cut again.
• A deal with educators that would provide $2 billion through temporary cuts in K-12 and community college spending. To get parents and teachers behind it, the governor vowed not to tinker with Proposition 98, the constitutional amendment guaranteeing annual increases for schools.
• A one-time infusion of $1.3-billion as a result of an amnesty program aimed at collecting back taxes from wealthy people who sought shelters that have been ruled illegal.
• Use of as much as $5.3 billion of the deficit bonds approved by voters in March to avoid spending cuts. The governor's plan is to use about $3 billion for that purpose, but Democrats say that if Schwarzenegger insists on no new taxes, they will insist he use all of the available bond money, including what was supposed to be set aside for fiscal 2005-06.
Higher than anticipated tax income, thanks to an improving economy, has brought in close to another $1 billion. And administration officials are confident that they could bring in at least a few hundred million more from the federal government.
The governor is also close to sealing a deal with the Indian casinos that would generate another $1 billion to $2 billion. An agreement is expected a few weeks after the revised budget comes out.
"I'm confident that it will be done well before July 1." said Howard Dickstein, attorney for several casino-owning tribes and one of the lead negotiators.
The money would come in exchange for granting tribes expanded gaming rights. The administration hopes to use it to avoid steep cuts in spending on transportation projects. Schwarzenegger would be able to say he saved voters from new taxes while keeping the roads from falling into disrepair.
Many of these compromises move the state's budget challenges into next year. By relying on about $10 billion in one-time income, the state may be guaranteeing a sequel to the budget drama of the last few years.
Some economists are skeptical. They warn that the state's debts are piling up much faster than the economy is improving.
"Yes, the economy is doing better, and no, it won't put off the day of having to settle up," said Stephen Levy of the Center for the Continuing Study of the Economy in Palo Alto. "It can't grow that fast."
Administration officials say closing such a giant budget hole takes time.
"It took more than one year for the state to get into this disastrous fiscal condition, and it will take more than one year to get out," said H.D. Palmer, spokesman for the Department of Finance.
Political analysts say Schwarzenegger has passed the point of no return on his no-new-taxes pledge, and he now must do whatever it takes — including more borrowing — to keep his word.
They point to comments he made at the California Chamber of Commerce last week.
"We will make the cuts, and we will not increase the taxes — that is for sure," Schwarzenegger said. "That is for sure."
Gary Jacobson, a professor of political science at UC San Diego, said the appearance may have sealed the fate of the budget.
"I think he'll go all out not to do it this year," Jacobson said of raising taxes. "He has committed himself to that line. Backing off so soon would be a political problem for him."
Next year, Jacobson says, the governor may not be able to stand so firm. By then, the bond money would be gone, he said. New revenue from gaming could drop sharply. And the governor would have committed himself not to cut most of the K-12 education budget.
But Assembly Budget Committee Vice Chairman Rick Keene (R-Chico) said all that would put the state on the right path.
"We want to make sure future Legislatures don't spend us into oblivion,"
he said. "And this helps."
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