A Budget Long on Pain, Short on Wishful Thinking

Gov. Gray Davis' $96.4-billion bad times budget proposal is filled with political calculations. They're not calculations designed to help him politically. They're strategic moves aimed at getting an honest budget from the Legislature.

He wants a budget with minimal gimmicks such as cooked revenue numbers, inflated federal dollars, underestimated welfare caseloads and raided piggy banks.

Gimmicks produced last year's budget, which led to the current $34.6-billion projected shortfall for the next 18 months.

That was OK last year, many of us thought, because economists were predicting California soon would be returning to boom times. Now the state no longer can afford wishful thinking.

Now, any honest budget must include tax increases. Everybody but the most closed-minded, head-in-the-sand Republican admits this, privately if not publicly.

Because of California's inane two-thirds vote requirement for legislative passage of a budget or tax increase, Davis and his Democratic allies will need at least two Republican supporters in the Senate and six in the Assembly to enact an honest spending plan.

So Davis' main budget calculation was to dedicate all $8.3 billion in new tax money to local government -- while also requiring the locals to spend it on health services that the state now funds. Services for people like the mentally ill, welfare kids and the aged disabled.

This shifting of responsibility is euphemistically called, in Sacramento, "realignment."

"I want to stress," Davis told reporters Friday, "we are not shortchanging the counties. We are sending them sufficient money to maintain these programs."

That point will be argued heatedly in coming months.

The rationale, as stated in Davis' budget document, is: "Programs that accrue primarily local benefits ... should be administered locally."

A traditional Republican argument.

But the real calculation was that local officials -- maybe even local voters -- might accept higher taxes if they're spent locally.

"Taxes have to stay close to home," a Davis advisor told me. "People might not mind paying higher taxes if they know they're going for local services."

Davis took a lesson from L.A. County voters when they passed a parcel tax last November to pay for trauma centers threatened with closure.

But the governor's budget also strips local governments of about $3 billion in annual state aid they're now receiving. This aid supplants money the locals ordinarily would have received from the vehicle license fee, if the state hadn't cut it in the good times.

Feeling generous, the state "backfilled" the locals' revenue loss. Now, Davis proposes to eliminate most of that backfill.

Why not just raise the vehicle license fee, as Davis proposed and the Legislature rejected last year?

The governor went into a convoluted answer about tax-and-spending technicalities at the news conference.

But here's his real calculation: It's strategic folly to fight for an increase in the vehicle fee to help local government. Why put your neck on the line for cities and counties so they can escape pain?

"We've been very good to cities and counties," Davis said. "They shared in the good times. They have to share in the bad times."

Moreover, socking local governments is likely to put pressure on Republicans -- from the locals.

The GOP railed against increasing vehicle license fees last year. Maybe now they'll get yelped at by local officials and compromise.

Republican leaders immediately pounced on Davis for proposing a sales tax increase and higher income tax brackets for couples making above $272,000.

"Unnecessary and irresponsible," said Assembly Minority Leader Dave Cox (R-Fair Oaks).

Senate GOP Leader Jim Brulte of Rancho Cucamonga: "I have no intention of voting for any tax increase -- and I'm fairly confident there won't be any tax increase passed out of the Senate with Republican votes."

The potential trade-off for Republicans is a cap on spending that would set aside boom-time surpluses for use during times of bust.

That's a worthy idea, and Davis is amenable to it. But he'll need to persuade liberal Democrats.

Anyone anxiously waiting for Davis to spell out his ideas for reforming the tax structure must have been disappointed. He laid out some thoughts, but alluded only in passing to two major ideas: raising taxes on commercial property and extending the sales tax to services.

This also was a calculation. Davis was persuaded by his new finance director, former state Sen. Steve Peace (D-El Cajon), that a specific restructuring proposal would offer Republicans and interest groups too fat a target.

The governor recalled that when he laid out a plan for resolving the energy crisis, he got beat up and still hasn't healed.

Privately, Davis doubts that hiking commercial property taxes and taxing services are politically doable anyway.

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