Blame all the players for the gimmicky budget

Give Gov. Arnold Schwarzenegger some credit. The big guy flexed and the Democrats blinked.

Give Democrats credit. They realized that what the governor demanded last week wasn’t worth fighting about.

Let him have it: a bigger, more secure “rainy-day” fund that won’t have any impact for years and, besides, may be a good idea. Moreover, it still must be approved by the voters.

Give Republican leaders credit. They held firm and were prepared to deliver enough votes to override the Republican governor’s threatened veto of the budget bill.

But Schwarzenegger made some smart moves -- saying he would veto hundreds of unrelated bills and stomping on the Achilles’ heel of the Legislature’s budget package: a separate “trailer” bill that accelerated income-tax withholding. Republicans would not override his veto of that.

The governor had the Legislature in check. Democrats caved on the rainy-day fund and dumped the withholding idea, which initially had come from the Schwarzenegger administration.

But enough of these positives.

Blame them all for another atrocious, short-sighted, gimmicky budget that set a record for procrastination. They wreaked havoc all across California among small business vendors, healthcare centers and nursing homes that couldn’t be paid by the state until a budget was enacted.

The spending plan “gives gimmicks a bad name. I’d have to call it banana republic financing,” asserted state Treasurer Bill Lockyer, a former attorney general and legislative leader.

Lockyer complained about “phony inflated estimates of revenue.” But the Democrat was especially incensed about the “fiscal folly” of providing “a massive corporate boondoggle” for big business with permanent tax breaks after three years.

“I understand why Republicans would do that,” he told me. “But I don’t understand why Democrats would. Past tax cuts have contributed to the budget deficit. And they want to add more and have bigger deficits?. . . . If we have to pass tax cuts in order to enact a budget, there’ll be no revenue left.”

Sadly, it was the best they could do. The economy is tanking. Republicans refused to vote for a general tax increase. Democrats wouldn’t cut any more education or healthcare programs. And there was the mountainous hurdle of a two-thirds majority vote requirement.

One bright spot was passage of the stronger spending controls that Schwarzenegger wanted: The enhanced rainy-day fund and some minimal power for a governor to cut spending unilaterally in midyear if a deficit looms.

If voters approve the governor’s “budget reform” in a special election next year, it will be fully implemented starting July 1, 2010. But it will be of no help for the next fiscal year, 2009-10, when the state could be in even worse shape financially.

Schwarzenegger seems addicted to over-promising and hyperbole. And his words could be thrown back at him -- as they often are -- if he and the Legislature become bogged in another budget quagmire.

In threatening to veto the budget, Schwarzenegger said it would “guarantee that we will have to make huge cuts in education next year or we will have huge tax increases” -- implying that some tweaking could avoid those horrible fates. That was disingenuous.

“Nothing is more important than getting our fiscal house in order,” the governor continued. “Fix the system once and for all.”

The budget the governor finally signed off on did little if anything to correct the multibillion-dollar “structural deficit” -- the amount of outflow over inflow -- and the state’s fiscal house definitely was not put in order.

The governor’s budget reform was a good step, but many more will be needed to “fix the system.”

For example:

Some outfit should take a hard, thorough look at state government in search of the proverbial waste, fraud and abuse. Five years ago, Schwarzenegger promised to and failed.

He appointed a huge commission of bureaucrats that produced a tall stack of reports but little action.

“Everybody thinks about the $400 toilet seat, but it doesn’t exist,” says the governor’s former communications director, Rob Stutzman. “Voters instinctively know there’s a lot of waste, but it’s hard to find and root out.”

Restructure the tax system. Stop the fiscal roller coaster. Broaden the tax base to make it less volatile in good times and bad. Don’t lean so heavily on the rich. Extend the sales tax to services. Make it easier for local governments to raise taxes.

Both Assembly Speaker Karen Bass (D-Los Angeles) and incoming Senate leader Darrell Steinberg (D-Sacramento) are eager to move on this. Schwarzenegger says he is too.

Enact two-year budgets. Plan beyond one year. Review the plan every quarter, watching for revenue declines or overspending. Act before the deficit gets out of control.

“Bring the budget process into the 21st century,” says Bill Hauck, president of the California Business Round Table, and a former top aide of legislative leaders and governors. “Do all the things done in large organizations, public and private.”

Rid ourselves of that gridlock-creating two-thirds vote requirement for a budget. Only two other states have it. I’d also allow a majority vote for tax hikes. Let the majority party rule and be held accountable.

Bass and Steinberg hope to place a majority-vote initiative on next year’s special election ballot.

Reform the initiative system to control ballot box budgeting.

Capitol politicians are vowing to “reform” the budgeting process. It’s an annual ritual and an easy promise -- like a hung-over reveler swearing off booze on New Year’s Day.

But let’s be positive. Maybe this was their last summer binge.

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george.skelton@latimes.com