June 25, 2009
Gov. Arnold Schwarzenegger and the Legislature are down to two options: Compromise or watch in embarrassment as the great state of California issues IOUs. Also known as scrip.
Not every Capitol politician would be embarrassed, of course. And that's one of the problems. No real sense of responsibility. No shame.
Perhaps the policymakers would be more shamefaced if the state continued down its self-destructive course and ran out of cash the last week in July. Then Sacramento would have to stiff people it owed money.
There's now less than a week to negotiate a budget plan that closes a projected $24-billion deficit hole for the fiscal year starting July 1. State Controller John Chiang announced Wednesday that if the governor and Legislature haven't figured out how to balance the checkbook by then, he'll begin issuing registered warrants --a.k.a. IOUs or scrip.
Treasurer Bill Lockyer previously warned that the budget must be balanced by June 30 or he won't have enough time to sell revenue anticipation notes -- amounting to a short-term bridge loan -- before the cash runs out.
So how do the governor and Legislature avert insolvency? Where's the compromise?
All three sides have to give: Schwarzenegger, the Legislature's Democratic majority, the Republican minority.
The Democratic leadership might want to start by tossing the governor some bones he can call "reform."
Surely the poor people's safety net can operate more efficiently, especially the caregivers program called In Home Supportive Services.
It's one of the state's fastest-growing programs, used by 446,000 frail elderly and disabled who need help -- with bathing, with cooking -- in order to live semi-independently and stay out of costly nursing homes.
Even the state Senate's newly created oversight "strike force" found fraud and abuse within the program, although it stopped short of using such strong characterizations, out of deference, I suspect, to powerful labor unions.
Last month, 25 Southern Californians were charged with billing the state for in-home care to people who actually were dead, hospitalized or in jail. A Sacramento County grand jury reported in March that abuse was "rampant and out of control."
The Times reported in April that "it is common for the state to send paychecks to scam artists claiming to be caring for someone who is dead. Or claiming to be caring for a relative or friend faking a disability."
Schwarzenegger's solution was to eliminate in-home services for 90% of the recipients. A bit extreme. That idea was rejected by the Democratic-controlled budget conference committee, although it did reduce some services for the least disabled.
There seems to be room here for a no-brainer deal.
The state only had two fraud investigators for in-homes services until the Legislature approved six more in February. The Schwarzenegger administration wants 30.
The latest Democratic budget proposal projects a $40-million savings from rooting out fraud, but doesn't furnish the tools to do it -- tools such as the ability to conduct background checks on caregivers, fingerprint recipients, require time sheets to be signed under penalty of perjury and stage unannounced home visits. Why not?
Democratic leaders also could agree to seriously begin trimming the state's generous pension and healthcare systems. They're time bombs. It wouldn't affect this year's budget, but the current systems seem ultimately unsustainable -- fiscally and politically.
The other side also needs to compromise. Schwarzenegger and Republicans should take another look at the Democrats' proposal to tack a $15 "parks pass" onto the annual vehicle fee. That would keep open all the state parks. And California motorists could enter the parks free. The governor suggests closing 220, roughly 80% of the total.
Sure, it's a tax increase, but do the governor and Republicans really want to begin closing down parks just as the vacation season begins? Bad PR.
It's clear that there will not be a permanent fix right now for the chronically hemorrhaging budget. There will be another patch job.
Democratic leaders contend a complete repair is impossible without raising taxes or shredding the safety net. Republicans refuse to allow the former; Democrats recoil at the latter. Republican lawmakers insist the budget can be honestly balanced without tax hikes. But, as usual, they haven't produced a detailed plan for doing it.
Schwarzenegger has offered a specific plan. But he would completely eliminate the state's main welfare program, which benefits 1.3 million people; kill the Healthy Families program that provides medical insurance for 930,000 children; and phase out the Cal Grants program of college scholarships. He'd also grab -- "borrow" -- nearly $2 billion from strapped local governments. Democrats won't buy any of it.
Senate leader Darrell Steinberg (D-Sacramento) asserts that Democrats already have agreed to $37 billion in program cuts in the last nine months. "Enough's enough."
But the governor and Democrats alike have inserted enough one-time accounting gimmicks into their plans to make a Ponzi schemer wince.
And that makes the Democrats' point: The bottomless deficit hole isn't immediately repairable in a way that's politically palatable. Forget more major tax hikes during a recession or ripping up the safety net as more people lose jobs.
Realistically, the budget can't be permanently fixed without significant reforms. They include updating California's tax structure to make it less volatile and more steady in good times or bad. Also, realigning the relationship between state and local governments to relieve Sacramento's financial burden and give the locals more power and revenue.
All that's being worked on, but it can't be done in six days.
There's an adage in Sacramento that a late good budget is better than a bad on-time budget. But how would anyone know? For too many years, budgets have been both late and bad.
This year, any on-time compromise would be better than a state meltdown. If needed, do a patch job every month. Just keep the cash flowing -- and hasten the reforms.
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