REGION: Area braces for worst state budget in years

Governor to deliver revised revenue, spending projections

By DAVE DOWNEY - Staff Writer | Tuesday, May 13, 2008 4:58 PM PDT ∞

Local politicians, teachers and lawmakers are bracing for the delivery Wednesday of what is expected to be the worst state budget news since a $38 billion gap triggered the ouster of former Gov. Gray Davis.

After Gov. Arnold Schwarzenegger commented last month that the budget was "$20 billion out of whack," there was widespread speculation this year's gap, largely a by-product of a housing market meltdown, will be close to half what it was in that tumultuous recall year of 2003.

"Here we go again, yet another budget crisis," said Shaun Bowler, UC Riverside political science professor. "It's back to the future."

The only suspense is the degree to which the news will be bad, said Jack Pitney, government professor at Claremont McKenna College in Los Angeles County, in a telephone interview Tuesday.

"The big question is whether it is going to be horrible or just bad," Pitney said. "Good is not an option."

The answer is expected to come about midday Wednesday when Schwarzenegger delivers his budget proposal for fiscal year 2008-09.

Every year at this time, the governor unveils a spending package different than the preliminary one he came out with in January. The revised May budget is based on more reliable revenue projections, as it comes a month after the income-tax filing deadline. And it is the unofficial starting gun for serious negotiations on the budget.

Whether in the final analysis the gap is set at $14.5 billion, as Schwarzenegger proclaimed in January, or at $16 billion, as the Legislature's analyst predicted in February, or at $20 billion, as the governor hinted last month, it won't make that much difference.

"Either way, the governor and Legislature have some very unpleasant decisions ahead," Pitney said. "They have to cut popular spending programs, raise taxes or do both."

And if recent history is an indication, majority Democratic lawmakers and their veto-wielding GOP counterparts will settle in for a protracted battle, and Californians will have to settle for another late budget, he said.

"I think the leaves will start falling before the budget passes," Pitney said.

Bowler also foresees a partisan deadlock lasting well beyond the July 1 start of the fiscal year.

"It's going to be another long, and probably ugly, budget season," Bowler said. "The Democrats and Republicans will blame each other and it will drag on for weeks and months."

One question many have on the eve of another round of negotiations is whether this will be the year Democrats get their wish and persuade enough Republican lawmakers to cross the aisle and raise taxes.

But while some Democrats have said a tax increase is inevitable, Republican Assemblyman George Plescia of La Jolla is betting against it.

"I just don't see anyone in our caucus willing to vote for a tax increase," Plescia said. "I think you'll see fees, but I don't think you'll see taxes."

Fees, which link charges to specific services those being assessed are receiving, can be passed by a majority vote, meaning the controlling Democrats can take care of that on their own. Tax increases require a two-thirds supermajority.

"The two-thirds rule means that Republicans eventually get their way," Bowler said.

Mike Byron, a former Democratic candidate for Congress who teaches political science classes at Mesa, MiraCosta and Palomar colleges, said he, too, believes Republicans won't budge, no matter how bad conditions become.

"Even if Schwarzenegger consented to a new tax, or a temporary tax, I don't think he could get it through his own Republican Party," Byron said. "They'll look at him as just another Democrat."

Even in 2003, in the face of a much bigger gap, the GOP managed to stave off a tax increase.

A better bet, Bowler said, is the Legislature and governor will resort to borrowing, despite Schwarzenegger's declaration a few years ago he was "ripping up the state's credit card."

As staggering as a potential multibillion-dollar gap sounds, it is misleading.

While Sacramento may take in less revenue next year, depending on Wednesday's projections, any decline would come nowhere near the $20 billion figure being bandied about. And in January, when a $14.5 billion gap was the talk of the state, the Department of Finance reported general fund revenues actually were on track to rise, if only slightly, from $101.2 billion to $102.9 billion for the budget year that begins July 1.

The general fund is the state's main bank account.

The gap between revenues and expenses instead reflects Sacramento's accounting and built-in expectations that state spending should grow at a 6-percent-a-year clip to keep up with population growth and demand for services.

And so, when Schwarzenegger proposed a $9 billion reduction in January, he was using $110 billion as a benchmark. That number does not equate to the current year budget. On the contrary, the state was on track to spend $103.4 billion, according to that preliminary budget.

The $110 billion figure was what Sacramento's budget would reach next year, if allowed to grow 6 percent.

Schwarzenegger, instead, proposed to curb spending 2.3 percent to $101 billion.

And while word on the street is Schwarzenegger proposed cutting $5 billion from education, he actually called in January for trimming spending by $2.6 billion for K-12 schools, from $42 billion this year to $39.4 billion, and by $104 million for universities and colleges, from $11.8 billion to $11.7 billion.

Given that education accounts for half the state budget, schools likely will share in any cuts in Wednesday's proposal, Pitney said.

"They can't escape the knife entirely," he said.

But Pitney said schools may fare better than other state programs because they are represented by one of the state's most influential organizations.

"Thanks to the power of the California Teachers Association, the cuts will be a lot smaller than they would be otherwise," he said.

And while Sacramento's gap is likely to be enormous, it isn't like the discrepancy between revenues and expenses ever went away, even during the recent good times.

That, said Bowler of UC Riverside, is because politicians have continued, since the recall days, to put off the more difficult but fundamental question of how much state service they are willing to pay for.

"We just haven't gotten a grip on what we want ---- lower taxes and fewer services, or more services and higher taxes," he said.

Contact staff writer Dave Downey at (760) 745-6611, Ext. 2623, or ddowney@nctimes.com.