Davis Budget Jam Not Such an Easy Target for Rivals

A slumping economy. A projected $17.5-billion budget shortfall. Lingering fallout from a costly energy crisis. These issues form a bleak backdrop to the race for governor of California, and are widely viewed as Gov. Gray Davis’ biggest political weakness as he makes his case for a second term.

California’s sudden fiscal malaise provides a priceless opportunity for the Democratic governor’s three Republican challengers to sound classic GOP themes of fiscal conservatism and smaller government. And in a relentless barrage of sound bites, the Republicans have attacked Davis’ economic record, accusing him of recklessly spending a massive state surplus, making disastrous financial decisions in the heat of the power crunch and allowing the state bureaucracy to mushroom.

“Gray is great in clear weather, but when the clouds come, he heads for cover,” said Secretary of State Bill Jones, one of the main GOP challengers. “That is not someone you want in office.”

“He took the highest surplus in the history of our state and he didn’t put any of it away for a rainy day,” said another, former Los Angeles Mayor Richard Riordan.

Yet beneath the vitriol, there has been little substance. Jones, Riordan and financier Bill Simon all have done little to distinguish themselves as the candidate of choice on fiscal issues, according to economists, political experts and budget analysts following the campaign.

Each has offered few detailed answers to the difficult question of how he would sort out the budget mess without harming crucial public services. Riordan, who had been the GOP front-runner until a late surge by Simon, has not unveiled any budget plan whatsoever, and does not intend to do so before Tuesday’s primary. And the vague economic stimulus proposals the Republicans have put forth all sound strangely similar.

“It illustrates how easy it is to be a candidate compared to actually being governor,” said Jean Ross of the California Budget Project, a nonpartisan advocacy group for the poor. “Obviously, since there is no good news here, they have made the calculation that there is nothing to be gained by sketching out a framework for how to deal with this problem. Richard Riordan has taken that to an extreme by offering nothing at all.”

Some economists and campaign experts say they are especially surprised that the Republican challengers have not made better political use of the state’s budget problem, the worst in more than a decade.

After all, Davis may be forced to make deep cuts in politically popular programs such as education and health care--or even raise taxes--this summer to bridge the gap, budget watchers say. And critics say Davis was downright Clintonian on the volatile tax issue earlier this year when he vowed he “would not advocate raising taxes,” leaving open the possibility that he would sign a tax hike into law if it were placed on his desk by the Legislature. The Republican candidates for governor have all vowed not to raise taxes.

Up for Grabs: Whose Fault Is It?

“It’s going to be a major issue, but it’s interesting to me that

Garry South, Davis’ chief campaign strategist, says there is a reason for his opponents’ lack of detailed emphasis on California’s financial problem: All over the country, states are encountering similar budget difficulties, a sign that the problem is related to the national economy.

“People are smart enough to understand that this is taking place under a national recession, which was underway before Sept. 11 and was made worse by those events,” South said. “It’s not a pretty picture. I am sure there will be a lot of angst and pain caused by the necessity of closing the shortfall. But I find it hard to believe this is the knockout blow the Republicans seem to think it is.”

There is also the issue of the larger economic picture under Davis: Current woes aside, he presided over one of the bigger booms in modern state history. Even with a recent rise in unemployment, the state has added nearly a million new jobs since Davis took office. The California economy grew from what would be the seventh to the fifth-largest among nations, placing it between Britain and France.

Though the energy crisis forced the state to spend billions of taxpayer dollars on electricity, the lights stayed on last summer, when many experts predicted that months of mass blackouts would cripple businesses. And though the economy’s short-term outlook remains poor, indicators suggest that the state, like the nation, may already be pulling out of its mini-recession, which a year from now could look like a bump in the road.

Though Davis’ Republican foes love to point out that the state budget has grown roughly 37% during his tenure, exceeding population and inflation increases, campaign spokesman Roger Salazar noted that they rarely mention how little it grew in the decade before he took office, when GOP Gov. Pete Wilson struggled with an even bigger budget problem. Wilson had to make draconian cuts to numerous programs, notably health care and welfare. Davis, Salazar argued, came in with a mandate from voters to boost education, transportation and health spending--and that is what he did.

“The governor makes no apologies for that,” he said. “That is what you are supposed to do in the good years.”

Threadbare as their proposals have been, the Republican contenders have all offered some glimpses into how they would attempt to extract California from its budget problem.

Riordan has touted a so-called zero-based budgeting plan that would evaluate bureaucrats’ demands for money every year instead of simply accepting the previous year’s budget as a starting point for negotiations. He has proposed a cut in the sales tax on manufacturing equipment, a strategic move his advisors say would spark economic growth and create jobs. And he proposes a team in his administration to help business leaders cut red tape.

“We are giving a sense of what we want to do,” said Riordan’s policy director, Joel Fox. “A lot of it is an attack on the bureaucracy.”

Simon, an advocate of the supply-side economic theories popularized by President Reagan, has advocated a reduction in the state’s capital gains tax as a way to spur investment. He wants to conduct a fresh evaluation of all programs and eliminate those that are not “cost-effective.” And he wants to establish a second state budget reserve, dedicated solely to dealing with natural disasters. “It’s fairly well proven by this point that when you reduce taxes, that fuels economic growth, because businesses have more money to reinvest,” Simon said.

Jones, who has the most government experience of the three candidates, proposes to put before voters any plans to spend a state surplus greater than $2 billion. He wants to limit the governor’s ability to expand government with a strict spending cap that would mirror increases in population and inflation. And he wants to eliminate the so-called phantom jobs that permeate the bureaucracy, vacant positions whose salaries are often diverted to pay for other things.

“People have said to me, ‘You are taking away the flexibility of the governor,’” Jones said. “My answer is: Yes, that is true, but if you look at Gray Davis and his inability to stop spending money, that’s not such a bad thing.”

While the proposals provide some indications of how the candidates would approach their task if elected, they also illustrate the political dangers of being specific.

A Few Specifics, and Risks Therein

In proposing a manufacturing tax cut, for example, Riordan is betting on increased jobs, but the immediate impact would be a reduction of $380 million a year from state coffers--hardly a step toward erasing the budget shortfall. Simon proposes trimming all pork-barrel spending from the budget, an idea that may sound good to voters fed up with government as usual, but to several budget experts it reinforced the notion that the political neophyte hasn’t a clue how to move his agenda in Sacramento. And while Jones repeats his populist plan to get rid of phantom jobs, an idea also backed by the other candidates, he does not provide any money to offset what would be a dramatic hit on state agencies, notably the prison system.

With Davis’ unorthodox decision to launch negative advertising against Riordan before the primary election, some pundits believe that the governor has skillfully changed the tenor of the campaign and moved it away from the financial issues.

Former GOP campaign strategist Allan Hoffenblum, editor of the nonpartisan Target Book elections guide, said the budget shortfall emerged as a key issue in the race in January, when Davis made his slippery statement on taxes during his State of the State address.

“It’s where Davis is the weakest, without a doubt,” Hoffenblum said.

But Davis succeeded in changing the subject by attacking Riordan on abortion, the death penalty and energy.

“He took the spotlight off the budget,” Hoffenblum said. “The whole issue of the campaign [became] who is Dick Riordan and what are his positions on the issues.”

Unlike crime or education, the budget and economy are somewhat abstract issues. It is for that reason, in fact, that Riordan has not planned to release a budget plan until May, when Davis has to flesh out his budget cuts and the human impact of the financial mess will become clear.

“People have grown weary of the rhetoric surrounding the budget,” Jones said, adding, “I will not run against Gray Davis on the economy. I will run against Gray Davis on the little mother in Fresno who can’t pay her power bills.”

Nonetheless, when the budget battle heats up this summer, and painful but unavoidable decisions to cut popular programs have to be made, politicos predict Davis will still be in a fight to justify his economic record. The California Constitution requires passage of a balanced budget, making it more difficult for Davis to dodge the budget problem by postponing it.

“The state budget isn’t yet real for most people,” said Sherry Bebitch Jeffe, who teaches political science at USC. “I don’t think it’s registering with the ordinary Californians. They are far more concerned with their own economic well-being.”

But Bebitch Jeffe predicted that will change as the year goes on--particularly if a spending plan is not approved by the July deadline and a partisan budget battle drags into late summer. Because the budget needs two-thirds approval of the Legislature, and thus requires some Republican support, many already predict just such a scenario.

As a result, economists and political experts say, the challenge for Davis will be to communicate his overall record in office, and make a case that the shortfall is due to a short-term economic downturn from which the state is already emerging. By contrast, the challenge for the eventual Republican challenger will be to focus on the current deficit and paint it as the result of Davis’ policies.

The GOP hopefuls have shown signs of trying just that.

How Will Blame Work With Voters?

“It all started when he became governor,” Simon said when asked to explain why Davis caused the budget problem. “You can get away with that [excessive spending] in government for a period of time, but if you head into a soft economy where tax revenues decline, like we have been in for some time now, the rocks are going to show.”

“He was blindfolded. He did not see [the recession] coming, when it was clear,” Riordan said. “He should have been making major cuts a year ago, when it was clear the Internet stocks were going down the tubes.”

Economist Ross C. DuVol of the Milken Institute said voters may not keep up with the latest financial minutiae coming out of Sacramento or Washington, but evidence suggests that they draw distinctions between the state and national economy through conversations with friends, neighbors and business colleagues, and what they read in the local newspaper.

“If I were an incumbent governor, knowing about this trend, I would be doing everything I could to remind voters of my record during my four years in office, and make the case that the technology sector made California more vulnerable to the economic downturn,” DuVol said.

But history suggests Davis may have a problem making his case--especially if he waits too long. When former President Bush was entering the final stages of his 1992 race against Bill Clinton, DuVol noted, indicators showed the country was coming out of recession.

But by then, it was too late for Bush. Clinton had seized the economic issue, and beat him.

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Times staff writer Julie Tamaki contributed to this report.