Can Wilson Create a Silver Lining for the Budget? : Sacramento: The governor faces the task of selling the Legislature and the public on his “balanced approach” of program cuts and tax increases.

A few days before events in the Middle East focused our collective consciousness on war, California inaugurated a new governor. On Jan. 7, 1991, the weather in Sacramento mirrored the mood around the state Capitol--it was dismal. True, the governor waiting to be sworn in wasn’t George Deukmejian. That provided a small ray of sunshine.

Still, dark clouds hovered over California that morning. The reality of Prop. 140, imposing term limits, had begun to set in. Bitterness at the voters’ rebuke and feuding over 140’s legislative budget cuts soured the atmosphere. For legislative staffers facing possible unemployment, the Capitol was “like working in a terminal-cancer ward.” Then there was the projected $7-billion budget deficit, hanging like a shroud over any policy initiatives. And looming over it all were the specter of war and the reality of recession.

Pete Wilson took center stage, playing to a tough audience craving to be shown a silver lining. The way most lawmakers responded to his maiden speeches, Wilson might have been Daniel in the lion’s den, removing a painful thorn from the Legislature’s paw.

But with the rush of inaugural week now history and war no longer a matter of conjecture, we need to ask: Where is Wilson leading us--really? As he himself pondered in his State of the State address: “With revenues declining, how can any new programs be undertaken when it appears that existing programs seem inescapably threatened by the budget crisis?”

The most important thing Wilson accomplished in his first week as governor was to put hope and pride back into the political vocation and to offer a virtually rudderless capital some sense of direction. Sacramento is a place hungry for leadership. There was an almost palpable sigh of relief that the new governor intends to offer some.

That perception is as much a matter of style as of substance. But leadership style can be pivotal to substantive success.

In the new administration’s infancy, bipartisan legislative support will be crucial to achieving Wilson’s most politically sensitive goal: What he calls a balanced approach--that is, program cuts and tax increases--to solving the state’s budget crisis. There was something in Wilson’s State of the State for everybody, and something for everybody to hate.

Wilson may have angered the Legislature’s Prop. 13 babies--the lawmakers who came to Sacramento on the wave of tax-cutting fervor--with his talk of new taxes, family planning and an end to the the requirement that two-thirds of voters approve school bonds. But conservative Republican legislators were on their feet in response to the new governor’s hard rhetoric on crime and drugs.

Wilson may have alienated liberals with his proposals to cut welfare grants. But legislative Democrats were on their feet when he proposed allowing a majority vote to pass school bonds.

“Preventive government”--one that tries to head off problems before they happen--sounds good both to conservatives who would really prefer “prevented government” and to liberals who have long agreed with Wilson’s ringing declaration of independence from the Deukmejian era: “How much better to prevent crime than to punish it.”

Then Wilson offered a budget that is not so liberal as his rhetoric. Like Deukmejian, Wilson mounted an assault against Prop. 98, which earmarks about 41% of the state’s general-fund budget for schools, and nailed renters’ credits, programs for the homeless and welfare. Were these sops to conservative GOP legislators whom Wilson rightly sensed as restive? Perhaps.

Wilson knows that, like Deukmejian, he could find his goals threatened by legislators from both sides of the aisle who oppose his spending priorities. In Wilson’s case, conservatives in the GOP Assembly caucus may prove more troublesome than Democrats long shut out of effective compromise by Deukmejian’s capitulation to hard-line ideologues.

Early indications are that Wilson will not kow-tow to the hard right. Look at his appointment of pro-choice state Sen. John Seymour of Anaheim to replace him in the U.S. Senate and at the dearth of conservatives on the governor’s staff and in his cabinet.

But look also at Wilson’s post-inaugural rhetoric. Defending his cuts in Aid for Dependent Children to fund other services, he argued, “You have a lot of things that are a lot more important than a six-pack of beer or providing top dollar to a slumlord.” Wilson quickly backtracked on his Reaganesque rhetoric--perhaps realizing that his proposals must face committees and legislative houses led by Democrats who have long supported welfare rights and whose constituencies appeared to be demeaned.

Wilson’s $55.7-billion spending plan is fragile. Like Deukmejian, Wilson has constructed a gambler’s budget--it rests on a rosy scenario overcoming an uncooperative economy. He could wind up the loser in a budgetary shell game.

State Finance Director Thomas W. Hayes has acknowledged that he chose optimistic economic forecasts to prepare the Wilson budget and that, in the current slump, the state’s revenue gap could exceed the projected $7-billion shortfall over the next 18 months. Legislative Analyst Elizabeth G. Hill recently upped that estimated gap to almost $10 billion, citing Wilson’s underestimate of expenditures as well as his overestimate of economic recovery.

Here the Persian Gulf conflict may have a direct impact on California’s budget crisis. A short war, Hayes argues, could help the state economy by restoring consumer confidence, but a long war--and high oil prices--could sap consumer confidence, translating into lower retail sales and less state revenue.

Meantime, how bold Wilson was to localize certain health services and raise fees and taxes--yes, taxes--to pay for that. How noble to allow local and county authorities to pay for anti-drug programs by an increased sales tax and to build jails and schools with a majority vote--instead of the more difficult two-thirds requirement.

These moves could ease the pain of proposed education, health and welfare cuts, and perhaps mute the opposition of affected constituencies. The shift in responsibility certainly gets the state off the hook for some big-ticket items. That makes Wilson look good by holding down spending, and goes over like gangbusters with those crotchety conservatives.

But what happens if funding proposals fall through? If taxes don’t pass? Who can guarantee that license fees and liquor taxes, in a depressed economy, will bring in revenues at a level necessary to fund even current levels of services?

Wilson understands that bare-bones budgeting is no longer merely a mean-spirited weapon of partisanship. In states battered by recession, it has become part of a growing pattern of fiscal decision-making among governors of all ideological stripes. Politicians can no longer view budget cutting as a dastardly Republican plan to rid California of government and social-welfare programs; raising taxes can no longer be reviled as a Democratic plot to soak the rich and buy off the poor. Both strategies must be understood as interlocking keys to California’s fiscal survival. Wilson showed the courage to act on that understanding.

He has urged California lawmakers to shed partisanship and revitalize government. The high irony is that, to accomplish his goals, Wilson may have to use the most partisan tool: Reapportionment may be the driving force behind budget negotiations.

It would not be the first time California has seen a trade-off between reapportionment and reform. Jess Unruh used that strategy to win the Assembly speakership. Unruh said he never had to compromise on policy to gain support because he simply traded districts. Will Wilson be able to win support for his programs, particularly from the obstreperous Assembly Republican caucus, by using reapportionment as a carrot--or a stick?

After Wilson has navigated the rocky shoals of Sacramento and economic recession--and if he is lucky enough to craft a budget that honestly meets the demands of unprecedented growth, then comes the hard part. He must sell California’s voters on sharing the pain of budget cuts and tax increases and on breaking the thrall of ballot-box budgeting. Wilson knows that, knows how to do it and enjoys the process of selling. That may be the most significant difference between him and his predecessor as governor. And it is a hallmark of political leadership.

But with inadequate fiscal resources and continued intransigence within his own party, can Wilson be both pragmatic and moderate? Will reality deny Pete Wilson the opportunity to lead?