One of the interesting things about following Arnold is comparing the coverage between Weintraub at the "Bee" and the forces available to the "LA Times." The Times, in comparison, is clueless.
A three-year plan is the governor's only way out
By Daniel Weintraub -- Bee Columnist - (Published November 20, 2003)
With his pledge to balance California's budget without raising taxes or cutting education spending, Gov. Arnold Schwarzenegger has painted himself into a fiscal and political corner from which it is going to be very difficult to escape.
His only way out, it appears, would be to devise an audacious, three-year workout plan involving even more borrowing than he already has placed on the table and deep cuts in projected spending. He would need to put the state on a strict spending diet until at least 2006, which is the earliest year that revenues are projected to surpass what California's government is already spending now.
But in his first moves since taking office Monday, Schwarzenegger has chosen not to show this hand. Instead, he has proposed less borrowing than he needs and no spending cuts. He seems to be trying to coax lawmakers into accepting the first steps of his plan without revealing an endgame.
That uncharacteristically timid approach, however, is likely to undercut the governor inside the Capitol and out by leaving him open to the charge that he wants the state to borrow more with no clear plan to bring the budget back into balance.
That's exactly the path down which former Gov. Gray Davis traveled to political oblivion.
Only when viewed over the long-term does Schwarzenegger's strategy make any sense at all. Even then it's risky, and some would say it leaves California far short of what's needed to provide the education, health and other services on which the state's population depends. But at least it pencils out. And that's a start.
To put the problem in perspective, consider that Schwarzenegger is in the position of a head of household whose current annual income is $73,000 while his expenses are $77,000. That sounds bad, but not horrific. But it gets much worse.
He has commitments that will increase his spending to $87,000 next year, $93,000 the year after that and a cool $100,000 the third year down the road. His income, meanwhile, won't grow nearly fast enough to keep pace. Next year it's the same as this year: $73,000. Then, he hopes, it will climb to $77,000 and, in the third year, $83,000.
On top of all that, he already has a credit card bill of $11,000.
Add a few zeroes onto these numbers, turning thousands into billions, and you have the condition of California's finances today.
So far, Schwarzenegger has proposed refinancing that $11 billion credit card bill -- last year's ending deficit -- and adding another $4 billion to the tab to cover this year's gap. That's $15 billion out of a total of $25 billion in deferred obligations Schwarzenegger says he's stuck with. It includes about $3.5 billion he wants the state to give cities and counties this year to make up for local revenue lost when he rescinded the recent tripling of the car tax.
But Schwarzenegger's bond measure still leaves him staring at a gap next year between spending and revenues of $14 billion. And if he holds education harmless, as he's pledged to do, he would have to cut that entire $14 billion from the remaining $56 billion in the general fund budget. That's a 25 percent reduction from projected spending levels in everything from health care to universities, social services and environmental protection.
That's not going to happen. Democrats will never vote for cuts that deep. And the truth is, Republicans won't either. You're talking about closing down universities, emptying mental hospitals, slashing aid to sick old people.
So what's the alternative? If Schwarzenegger sticks to his guns on taxes, the only realistic road to recovery is a three-year plan that would slowly bring spending and revenues back into balance.
State spending could actually grow by almost 8 percent over that entire period, or about 2.6 percent per year. It could increase from $77 billion this year to $79 billion next year, then $81 billion and, finally, back in line with revenues at $83 billion in 2006-07.
That probably would not be enough to keep pace with population growth and inflation, let alone provide for any new initiatives. And it would mask the difficulty of dealing with a projected short-term surge in spending brought about by the expiration of temporary measures taken during the past two years. It would still require deep cuts in projected spending. And it would be dangerous. If revenues started falling short again, the whole thing would unravel.
And here's the kicker: It would require more borrowing. On top of the $15 billion re-fi Schwarzenegger is proposing, he would need $6 billion next year and $4 billion the year after that -- a total bond measure of $25 billion.
He could shrink that number by persuading lawmakers to cut more up front, or by finding other sources of income, such as the federal aid he's hoping for or a more generous deal with the Indian gaming tribes. But it's unlikely he could eliminate the need for more borrowing altogether.
If he really wants to do what he's pledged to do, a three-year plan is his only recourse. The sooner Schwarzenegger comes to terms with that, and starts explaining it to others, the better.
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