Deal-Cutting Schwarzenegger Opts to Put Off the Pain

In crafting a budget at a time when the state faces whopping shortfalls, Gov. Arnold Schwarzenegger faced a clear choice.

He could have tried to fix all the structural failings in the state budget now. That would have required a tax increase -- breaking a key campaign promise -- along with deep spending cuts that would have angered supporters of public schools, local government officials and recipients of social services. While he might have been able to force such a budget through, the effort would have been long, arduous and damaging to his credibility, political analysts said.

The alternative was to come up with a spending plan that stood a good chance of passing on time with minimal rancor. The governor hoped that would enhance a growing public perception that the paralysis in Sacramento was lifting and bolster public confidence that state government could resolve its problems.

Schwarzenegger chose the smoother road.

Under his revised budget, the gap between what the state spends and what it takes in may persist in future years. In fact, the deficit may be tougher to eliminate down the road because of some of the spending commitments Schwarzenegger is making now.

But he is betting that government reforms will produce savings and that the economy will pick up, boosting revenues to a level where the deficits can be wiped out with minimal pain. Moreover, the governor said that producing a budget that kept his major promises, reduced partisan acrimony and restored public confidence was a crucial first step toward confronting the state’s stubborn problems.

“The people are tired of the summer slam-fest in the Capitol,” Schwarzenegger said in releasing his budget Thursday. “They’re tired of watching the public welfare overtaken by partisan warfare.”

Since taking office in November, Schwarzenegger had considered dramatic moves to close the deficit. Each was dismissed as unpalatable -- risking his credibility or inviting prolonged feuds with lawmakers and interest groups that would jeopardize his goal of passing a budget by June 15, the oft-violated constitutional deadline.

He weighed a tax increase, for example, something many economists said he eventually would still need to close a structural deficit estimated at $7 billion.

“I don’t think the math adds up now without some tax increases,” said Stephen Levy, director of the Center for Continuing Study of the California Economy. “After he gets everyone to cut a little to make this year’s budget balance, he starts to pay it back in one or two years. I don’t see where the revenue is coming from.”

The governor’s camp quietly conducted polls to gauge whether the public would go along. And Schwarzenegger tested people’s reactions in hints to reporters that keeping taxes level might be impossible.

Not only would a tax increase have hurt Schwarzenegger with the public, it also would have squeezed lawmakers of both parties, compelling them to cast a polarizing vote in a year when the entire Assembly and half the Senate is up for reelection.

In the end, aides said the governor needed to be seen as true to his word.

“Go back and look at his public pronouncements [on taxes], from the campaign to the State of the State speech, to the Chamber of Commerce address the other day,” said one of the governor’s political aides, speaking on condition of anonymity. “To reverse himself would have had a tremendous detrimental effect.”

Another option was to cut dramatically into spending, a position advocated by the more conservative voices in the Republican governor’s party.

But Schwarzenegger has shown he has little appetite for such cuts. In December, he reversed a decision to cut services to the developmentally disabled, forgoing potential savings of more than $270 million. Prodded by his wife, Maria Shriver, he also scrapped plans to eliminate services to homebound children and adults.

In changing course, the governor disarmed Democratic lawmakers who fight for such programs, avoiding the sort of quarrels that in recent years have delayed budget passage.

“Judging by the angst that’s coming from the Legislature over the cuts that he has proposed, a broader effort to rein in government spending would be dead on arrival, even for a governor with his kind of political capital,” said Dan Schnur, a Republican consultant with close ties to Schwarzenegger’s advisors.

Leading up to Thursday’s budget announcement, Schwarzenegger cut numerous side deals aimed at averting protests and improving prospects for a swift and cordial budget agreement.

In accepting spending cuts this year in exchange for promised support in future years, college and university officials, for example, undercut Democratic lawmakers poised to fight the governor’s budget on grounds that it was hostile to education.

California State University Chancellor Charles Reed said it was an easy choice to make. Nobody in the Legislature “ever had a plan” for protecting the education budget in future years, Reed said.

In any case, “it was our friends” in the Legislature who voted at the end of last year’s session to cut millions from the higher education budget, he said.

By contrast, “the governor made these commitments,” Reed said, describing a conversation he and University of California President Robert Dynes had with Schwarzenegger.

“He looked Bob Dynes and me in the eye and he said, ‘I will keep my commitment.’ And that’s all I need.”

The one great weakness in Schwarzenegger’s strategy is that by promising those future spending increases, he has narrowed his options if he needs to make cuts two or three years from now.

On Thursday, legislators, including some Republicans, voiced qualms about that potential problem even as they admired the governor’s political success.

“It’s a brilliant strategy,” said Joe Canciamilla, a Democratic assemblyman from Pittsburg.

“I just don’t know how all these individual deals will work as you come toward a final agreement. And what happens in two years when these things start locking in?”

Added Assemblyman Rick Keene (R-Chico): “We still have a lot to do.”