Examiner Editorial: Budget veto may be best route

A rare stand on principle is brewing in state government this week if Gov. Arnold Schwarzenegger follows through on his Tuesday threat to veto the tricky budget compromise that virtually guarantees massive annual deficits into the foreseeable future.

It would not be easy for Schwarzenegger to face the outraged howls that would surely erupt if he does block passage of the currently 78-days-late budget that, although cynically flawed, at least allows the state to resume payments to scores of service vendors and safety-net programs that had been on the verge of shutting down.

This might be the best chance in years to fix one portion of California’s barely functioning budget process and prepare the public for wider reforms next spring. The governor may never again have this much leverage over the recalcitrant Legislature’s partisan gridlock before he is termed out in 2010.

At first, it is hard to see how Schwarzenegger might actually have enough power to force a budget change — since the two-thirds legislative approval needed for passing any appropriations legislation is also large enough to override a veto. But his huge bargaining chip is a dramatic new threat to veto all the nearly 1,000 bills that are now waiting for his signature. He stopped signing bills more than a month ago to put pressure on lawmakers to pass a budget

Schwarzenegger’s key demand is for an ironclad safeguard so money cannot be removed from the rainy-day reserve fund unless the state’s revenues fall below projected spending. “Without this restriction, the rainy-day fund turns into nothing more than a slush fund that can be raided at any point and up to any amount,” said the governor’s communications director, Matt David.

This year’s legislative budget deal is even worse than the routine annual smoke-and-mirrors fakery. As usual, the latest compromise evades both program cuts and new taxes by raiding local allocations and piling on more debt. Meanwhile, nothing is done to fix the state’s long-term structural deficit, and all hard decisions needed to prevent Sacramento from consistently spending more than it collects were again put aside till next year.

As budget details emerge, one unpleasant discovery was that the new “accelerated revenue” collections would increase state income-tax withholding by 10 percent for salaried Californians and also boost quarterly estimated tax minimum payments. Workers would not only be left with less take-home pay now, but in 2010 the state would face a debt of some $3.9 billion to refund those tax overpayments.

This is exactly the kind of irresponsible politics pushing California ever deeper into a fiscal hole. Controversial as a budget veto would be, it could be Gov. Schwarzenegger’s greatest opportunity to redeem his early promises to reform state government.