This might be too much to hope for, but it could just be possible that Gov. Arnold Schwarzenegger and both sides of the Legislature are finally ready to stop playing games about making sustainable long-term fixes to California’s deeply flawed budgeting stand-offs.
The first step to remedy the state government’s debt-juggling addiction would be the governor’s Friday announcement that he will declare a fiscal emergency in January. This is industrial-strength medicine, being prescribed for the first time since it was passed in 2004 as part of Proposition 58, one of the two Schwarzenegger special referendum measures not defeated.
Fiscal emergency authority enables California governors to declare a state of emergency when revenues are “substantially below” what was expected when the current budget passed. This declaration triggers a special session of the Legislature authorized to make midyear spending cuts. Even stronger, lawmakers are required to send the governor legislation balancing the budget within 45 days — or else they would be barred from acting on any other bills or adjourning until they agree on a deficit solution.
Neither the legislative majority Democrats nor the Republican minority issued any immediate objections to Schwarzenegger declaring a fiscal emergency, although in fact Proposition 58 prevents them from blocking such a declaration. The latest 2008 deficit projection is for a $14 billion shortfall, possibly the biggest in California history.
And with the nationwide meltdown of the subprime mortgage market sparking a worldwide credit crunch, the trend for state revenue collections is looking bleak indeed. If ever there was a time for the state to stop resorting to smoke-and-mirrors budget trickery, the first quarter of 2008 is it.
When Schwarzenegger campaigned for office in the 2003 recall of then-Gov. Gray Davis, he promised to end deficits permanently by cutting billions in wasteful spending. He has been notably unsuccessful at fulfilling this specific pledge. State spending increased more than 40 percent under this governor, and California became the biggest borrower in the municipal bond market while sinking to the second-worst credit rating.
This year’s $145.5 billion budget increased spending 11 percent, primarily because of the increased cost of bond repayments and set-aside funds. But general fund spending for day-to-day operations rose only 1 percent. As recently as August, the California Department of Finance projected that the state would have a $4.1 billion budget reserve. The subprime mortgage crisis erased that rosy outlook.
Last month, Schwarzenegger ordered state agency bosses to draft plans for across-the-board cuts as high as 10 percent. And now he is, in effect, locking the Legislature’s no-cut Democrats and the no-tax Republicans into a room where they cannot get out unless they return to the “art of the possible” that politics is supposed to be.
We are pleased to see the governor making these forceful moves. The time is over for Sacramento to take the easy way out with budget fakery. The blunt truth is that if sufficient cuts cannot be agreed on, there might be nothing left except some sort of tax increase.