Recession’s Here; Can Reform Be Too Far Behind?

Want reforms in government spending? First you need rollbacks in tax revenues. A recession.

It’s now official as of last Monday: We’ve got the recession. This was hardly news to anybody, especially to Gov. Gray Davis, who has been sweating out the steepest one-year decline in state tax revenues since World War II.

The recession-as-prerequisite-for-reform thesis is not just the gospel of some anti-government right-winger. It’s the acknowledgment of a pragmatic pro-government liberal, Susan Kennedy. She’s the governor’s deputy chief of staff and secretary of his Cabinet. Most relevant, she’s the principal aide advising him on how to pare spending and balance the state’s recession-tattered books.

“The only natural predator to growth in government is recession,” observes Kennedy, 41, a former Democratic Party strategist and press secretary for U.S. Sen. Dianne Feinstein.

“Recession is the only time you can reform. You can enact significant reforms only when you’re in a crisis.”

It’s the silver lining around red ink, something most Democrats recognize only reluctantly.

“The question is how do you do it intelligently,” Kennedy continues. “Nobody wants to hurt people. Nobody wants to cut incontinence supplies for seniors. But you have youth development funding, child care, Healthy Families programs. . . . These are places you have to look.

“It’s all very difficult. All very painful. All very ugly.”

And very necessary. Nonpartisan Legislative Analyst Elizabeth G. Hill projects a $4.5-billion deficit for this fiscal year ending next June 30 and at least $12.4 billion for the next budget year. Davis is assuming $14 billion--17% of the general fund.

So far he has frozen state hiring and delayed many new programs enacted during the recent legislative session. He has proposed about $3 billion in cuts, which must be approved by the Legislature. Even then, they’ll need to find another, say, $10 billion.

Kennedy has been rummaging through state government, looking for more ways to cut, consolidate, or just cancel programs. Maybe delay some for a couple of years.

She’s on her fifth pass. This week there’ll be “the real sit down and choose your poison” meeting with Davis and top aides, she says. The governor’s next state budget proposal must go to the printer by Christmas, and legally it has to be balanced.

“After awhile, these become numbers on a page. You lose your humanity,” Kennedy confesses. “I’ve been looking at something I cut five days ago and I can’t stomach it. I’ve lost my nerve. So I’ll lose $75 million because I can’t stand myself.”

Davis already has proposed cutting $1.2 billion from schools. The education establishment is backing him. “He did it in a fair and equitable way,” says Wayne Johnson, president of the California Teachers Assn.

Some programs are complicated by federal matching funds and mandates. Like job training, which Kennedy is eyeballing. “We’ve got $5 billion in job training scattered all through the budget,” she says. “There must be 30 programs. It doesn’t make a lot of sense. It has become a monstrosity.”

Child care is another example. “California has the Cadillac of child care programs,” Kennedy asserts. Restructuring child care could save hundreds of millions, she says, and still benefit low-income working mothers who currently aren’t eligible for state subsidies because they haven’t been on welfare.

Control costs but help the truly needy.

Sound familiar? Like Ronald Reagan?

A recession will do that, even to Democrats.

And because state government--unlike the feds--cannot run up gargantuan debt year after year, hard times also will turn fiscal conservatives into tax hikers.

Gov. Reagan raised taxes by an amount equal to 30% of the general fund. Gov. Pete Wilson hiked them the equivalent of 16% when he faced a deficit of 32%. Gov. George Deukmejian had only a 7% hole, but still raised taxes to cover 2%--”fees” and “loophole closures,” he called them.

Duke’s innovation was the “trigger” sales tax. If the economy didn’t perk up, a one-cent increase would be triggered. He gambled and won; the economy took off.

Is raising taxes inevitable for Davis, even as he runs for reelection?

“We’re not looking at raising anything just yet,” Kennedy insists. “We’re not done cutting . . . slashing and burning.”

She does add, “We’re going to have to look at triggers. Definitely. Triggers also can apply to program expansions and cuts.”

I.e., if the treasury isn’t replenished, trauma centers get whacked. Parks gated. Classrooms crammed.

There’ll be spending reforms. And there’ll be tax increases. It’s inevitable.