Schwarzenegger Retreats on Key Campaign Vows

Retreating from two central campaign promises that helped make him governor, Arnold Schwarzenegger on Tuesday dropped his personal “guarantee” that cities and counties would be compensated for billions in lost car-tax revenue and reversed his pledge to safeguard spending for public schools.

In a wide-ranging interview with CNN, Schwarzenegger offered no commitment that his administration would restore to local governments the money they lost when he repealed a vehicle registration fee increase on his first day in office. Rather, he said that mayors and county supervisors who are worried that some $4 billion in lost revenue won’t be replaced should look to the Legislature, which is considering a bill to make that happen.

And he suggested that if local government coffers are not replenished, it is not his fault.

“They [local officials] should put pressure on their state legislators because they’ve spent their money,” Schwarzenegger said on the network’s “Inside Politics” show. “It’s not me taking anything away from them, it’s they’ve spent their money.”

Schwarzenegger also broached the prospect of suspending an education spending formula mandated by the state Constitution. During the campaign he had said that schools would be cut “over my dead body.”

“We are working with the education community to see how we can work together with them to help us with this budget crisis,” the governor said.

Local officials and educators were startled by the statements, made on the same day a major Wall Street rating agency downgraded California’s credit status, and as he and state lawmakers continued haggling over a proposed spending cap and $15-billion bond measure aimed at shoring up the state’s finances.

As a candidate, Schwarzenegger shared few details of how he would close the state’s yawning budget gap. Now in office, his policies are being revealed in the day-to-day press of running a government.

Before he was sworn in, Schwarzenegger offered personal guarantees that local governments would not be deprived of money from a rollback of the car-tax increase. Across the state, cities and counties use up to 75% of that revenue to pay for public safety, according to the California State Assn. of Counties.

“They should have enough funds and I will make sure of that,” Schwarzenegger told reporters in October. He also said on the subject, “I can guarantee you that we will not take money away from them. They need the money.”

During the campaign, when Schwarzenegger was pressed on the loss of local revenues wrought by wiping out the increase, he said he would make up the difference the same day he cut the car tax.

Communities that rely on the tax fear that state government, facing a whopping shortfall of its own, will leave them shortchanged. The state’s monthly transfer of car-tax revenue to local governments -- set for today -- will be $254 million less than what would have been the case under the higher fees.

“Everything local government does is being put on the line by this drastic, drastic reduction,” said Chris McKenzie, executive director of the League of California Cities.

Los Angeles Mayor James K. Hahn and various City Council members held a news conference Tuesday to warn that the up to $19 million that the city will lose each month because of state cuts pays for the equivalent of 190 police officers or firefighters.

“We are extremely apprehensive that the nearly $4 billion in local revenues that cities in California are owed are at risk,” Hahn said. “Most of that funding pays for police and fire services. In an emergency, this funding could mean the difference between life and death.”

Schwarzenegger’s evolving position reflects the difficulty of both fulfilling campaign promises and balancing the budget.

California faces a $14-billion budget gap. For the governor to both repeal the car-tax hike and make local governments whole he would need to make steep cuts elsewhere in the budget, something he is reluctant to do.

Throughout the recall campaign and after his victory, Schwarzenegger pledged to leave intact money for kindergarten-through-12th-grade education. The children, he often said, would have first call on the treasury in his administration.

But in the CNN interview he indicated that K-12 might not be spared, suggesting that suspending a constitutionally mandated spending formula for education -- known as Proposition 98 -- might be needed to solve the state’s budget problems. The proposition, passed by voters in 1988, requires that public schools -- kindergarten through 12th grade and community colleges -- receive about 40% of the state’s revenues.

When asked about the funding guaranteed by Proposition 98, Schwarzenegger said, “Maybe have a suspension; some relief there so you can pull out of this next two years and then pay it back, maybe.”

That comment seems at variance with an interview Schwarzenegger gave The Times in September. Asked if he would consider delaying Proposition 98 funds in the short term to balance the budget, he said: “The important thing to know is that there are certain fundamental things, I would just say, not over my dead body. To me, children are extremely important.”

Asked if the governor is considering suspending Proposition 98, Schwarzenegger’s communications director, Rob Stutzman said that “given the uncertainty facing the state, just about anything is on the table.”

Stutzman denied that the governor reversed himself, claiming that a suspension of Proposition 98 could slow the growth of education spending, not necessarily cut it.

“If there is going to be some type of suspension of Proposition 98, that does not necessarily mean there is not more money for education,” Stutzman said. “We have to be clear what Proposition 98 is and is not.”

To suspend the education funding guaranteed by the proposition, Schwarzenegger would have to get the support of two-thirds of the Legislature.

Educators argue that Proposition 98 guarantees that funding for students keeps pace with population growth.

If cutting lower education is the governor’s plan, it is out of the question, they said, pointing to promises made during the campaign.

“When I heard that comment I said, ‘No, no, that’s not right,’ ” said Barbara Kerr, president of the California Teachers Assn. “When he was campaigning the governor said personally to me that he would not cut education, and the teachers of California intend to hold him to that promise.”

Kevin Gordon, executive director of California Assn. of School Business Officials, said educators were “dubious” even of a suspension tied to promises that schools would be repaid down the road. He noted that other temporary solutions lawmakers have embraced in the past to bypass Proposition 98 wound up costing schools far more than education leaders had agreed to when they pledged not to challenge the moves.

In a tough financial climate, Schwarzenegger’s campaign promises may be colliding, budget analysts said. Imposing a tough spending cap, as Schwarzenegger hopes to do, may be impossible without cutting education funding, they said.

“The problem is Proposition 98 is the elephant in the room,” said Kim Reuben, a budget analyst with the Public Policy Institute of California. “Education is really popular, and it is also where most of our spending goes.”

The state’s credit standing, meanwhile, suffered anew when Moody’s Investors Service lowered California’s bond rating, citing the car-tax reduction.

“The [car-tax] action is expected to significantly increase what is already projected to be a very substantial fiscal deficit over the next 18 months,” according to a statement announcing the rating move.

Moody’s said the car-tax cut, coupled with “the deep political disagreement over a way out of the state’s fiscal dilemma, are not encouraging.”

The move lowered California’s general obligation bond rating to Baa1 from A3. Moody’s still rates California one notch above Standard and Poor’s rating of BBB.

Tim Blake, a senior analyst at Moody’s, said only four other states have been rated this low by the agency since the 1970s. Each of those states was facing significant economic downturns. In California, he said, the reason is poor fiscal management.

Only Puerto Rico and the District of Columbia are currently rated as low.

Lower credit ratings could cost taxpayers millions of dollars in higher interest rates on the billions of dollars the state probably will have to borrow in the next few months.

Meantime, Schwarzenegger, legislative leaders and aides continued negotiating the details of a permanent state spending limit and a plan to borrow up to $15 billion to balance this year’s budget.

The Republican governor asked the Legislature to put those two measures on the March 2 ballot. But Democratic leaders have resisted, saying his spending cap would devastate public schools and programs that help the poor and disabled.

The two sides say they will keep talking until they get an agreement or until a noon deadline today passes. Schwarzenegger met separately for 45 minutes each with Assembly Speaker Herb Wesson (D-Culver City) and Senate President Pro Tem John Burton (D-San Francisco).

“Meetings don’t really accomplish something; what we’re hoping to do is just go up and work on a proposal that may lead to solving the problem,” Burton said after his meeting with the governor.

Asked if they were close on a deal, Burton said, “Not really.”