California's latest budget implosion, leaving the state in a multibillion dollar hole, is another stark reminder that Gov. Arnold Schwarzenegger has not fulfilled the central pledge from the 2003 recall election - to tame the state's chronic deficits and enact long-term budget reforms.
During the unprecedented recall campaign, then-candidate Schwarzenegger sold voters on the idea that he could bring spending in line with tax revenue and would push for changes that would smooth out the state's up and down budgeting cycles.
"Audit everything, open the books, and then we end the crazy deficit spending," Schwarzenegger said at the time.
With just about half a year left in office, Schwarzenegger faces an even crazier deficit problem than the one he inherited, and finds himself without any of the major budgeting reforms he proposed.
California's chronic imbalance between tax revenue and its annual spending obligations persists and has been made worse by a recession that has wreaked havoc on the state's economy over the past three years.
That Schwarzenegger, a Republican, has failed to realize the central promise of his turn in the governor's office has become an ever-present backdrop to his final year. On Friday, he released revisions to his last annual budget, showing a deficit that is more than a quarter of all general fund spending.
How much of the blame Schwarzenegger deserves for failing to reform California's budget process is likely to be a source of political debate for years.
Did he lose focus because the structural reforms he proposed were too difficult to achieve? Did he get distracted by other issues and California's perpetual budget crises? Is the state's political atmosphere and budgeting process so dysfunctional that even a former action hero can't make a difference?
"The single greatest rationale behind the recall election was reforming an out-of-control state government," said Dan Schnur, director of the Jesse M. Unruh Institute of Politics at the University of Southern California and a former Republican political strategist. "Right now, it doesn't look like that's going to happen."
Schwarzenegger cannot be blamed for the consequences of the recession. But had he been able to make some of the changes he advocated, he most likely would have left a far better budgeting process for his successor and a future generation of lawmakers.
The changes he desired included revamping the state's tax system, enacting a robust and tightly controlled rainy day reserve, and establishing a strict spending cap so excess tax revenue during good economic years wouldn't be wasted.
Schwarzenegger rode into office on a wave of optimism that he could cut state spending and fix California's broken budget system because he was an independent who would not be moved by special interests. His campaign capitalized on voter frustration over California's exploding budget deficit and the perception that his predecessor, Democrat Gray Davis, had a pay-to-play approach to governing - giving state labor unions big raises and luxurious pension benefits in exchange for their campaign support, for example.
The budget deficit was projected at $16 billion by the time Schwarzenegger assumed office, roughly 20 percent of the state's general fund at the time. The projected deficit through June 2011 is roughly one-quarter of expected general fund spending and comes after lawmakers already have made cuts, borrowing and adjustments of about $60 billion over the past two years, generating a new round of voter anger.
Schwarzenegger staked his candidacy on putting the state's fiscal house in order. Voters bought in, and in October 2003 completed the first successful recall of a sitting governor in state history, replacing Davis, a career bureaucrat, with the Hollywood hero who promised to save the day.
In his first State of the State address on Jan. 6, 2004, he vowed a top-to-bottom reform of state government.
"Every governor proposes moving boxes around to reorganize government," Schwarzenegger said. "I don't want to move boxes around. I want to blow them up."
At a Los Angeles news conference during the recall campaign, Schwarzenegger stood between former Secretary of State George Shultz and investor Warren Buffett as he laid out his vision for restoring the luster to California's tarnished reputation.
But that high-profile gathering provided the public with an unintentional glimpse into Schwarzenegger's governing style, one that at times favored popularity over practicality.
Noting that he paid more in property taxes on his Nebraska home than on his beachfront estate in California, Buffett had suggested changes to Proposition 13, the 1978 initiative that rolled back and capped property tax assessments. Prop. 13 is sacred ground in California politics, and those who dare suggest tinkering with it - even modestly - immediately draw condemnation.
Schwarzenegger dismissed Buffett's suggestion without any serious consideration, and joked that he would make the aging billionaire do 500 sit-ups the next time he mentioned changing Prop. 13.
It would not be until the year before he left office - six years later - that Schwarzenegger would put what was left of his political muscle behind a serious effort to change California's tax structure as a way to smooth out the state's volatile revenue stream. The attempt so far has gained little traction in the Legislature.
"I think it's too late," said former state Senate leader John Burton, a Democrat who had strong relationship with Schwarzenegger before he was termed out of office. "It just seems to me that that should have started a long time ago."
Schwarzenegger acknowledges he has fallen short on many of his initial objectives, mainly to tame spending.
During a January appearance on "Meet the Press," the governor pulled from his jacket pocket a list of 13 goals he had intended to accomplish before he left office. While greater infrastructure spending for schools, levees and roads had been checked off, there were blanks next to budget reform and tax reform.
"Ever since I was elected governor I have been trying to get budget reform and to get a rainy day fund," Schwarzenegger said when he released the budget proposal for his final year in office in January 2010. "We haven't done it yet. But I will continue pushing for that and fighting for that."
There is no dispute that Schwarzenegger has made attempts at budget reform. At issue is whether he took the right approach and pushed hard enough.
He persuaded voters in 2004 to borrow $15 billion to close the budget deficit and a companion measure that gave the governor authority to declare a fiscal emergency and keep lawmakers focused on the problem in a special session.
Schwarzenegger had wanted a firm spending cap but backed off after the Democrats who control the Legislature refused to support it. Nevertheless, his first year was largely seen as productive.
Schwarzenegger's former deputy chief of staff, Richard Costigan, said that was when the administration could have heightened demands for a spending cap and taken steps to cut spending dramatically.
"Looking back, you're at the height of your popularity in 2004. You just came off the recall and you've got the people behind you. That was the time to make the reduction," said Costigan, who is now working for Republican gubernatorial candidate Meg Whitman.
Instead, Schwarzenegger went his own way in 2005.
He decided to bypass the Legislature and the powerful special interests in the state capital by calling a special election for four ballot initiatives. Only one of those - a spending cap - dealt directly with budget issues.
The others addressed redistricting, teacher tenure and restricting political spending by public employee unions. He ended up alienating lawmakers, public employee unions, an array of interest groups and voters, who would be heading to the polls for the sixth time in three years.
Each initiative failed, forcing a chastened Schwarzenegger to retrench and replace much of his staff.
Budget reform was put mostly on hold in 2006 and 2007 as he began to focus on infrastructure bonds, environmental issues and health care reform.
It wasn't until the beginning of 2008, when California was ensnared in a rapidly declining economy, that Schwarzenegger resurrected his call for budget reforms.
He called for a constitutional amendment to change the budget process, establishing a rainy day fund and automatic spending reductions during times when the state's tax revenue declined sharply and unexpectedly. His proposals ultimately went nowhere, as he found his popularity dropping and his ability to work with lawmakers of both parties diminishing.
In 2009, he went back to the ballot with another special election. By then, however, voter distrust of Schwarzenegger and the Legislature was deep. That distrust, a series of confusing ballot initiatives, and recently enacted tax increases led to a predictable conclusion.
Voters rejected all the measures placed on the ballot by Schwarzenegger and the Legislature, including a spending cap and rainy day fund.
Mike Genest, Schwarzenegger's former finance director, defended the governor, noting that the final years of his administration have been marked by the worst recession in 70 years. Under the circumstances, Schwarzenegger accomplished as much as he could, Genest said.
"There was no time," he said of enacting long-term budget reforms.Copyright © 2014, Los Angeles Times