Adding Up the Finance Appointee's Record

Times Staff Writer

The budget writer tapped by Gov.-elect Arnold Schwarzenegger to be California finance director has a reputation as a cunning strategist with a record for pushing through the agendas of Republican governors in Michigan, New York and Florida.

Many fiscal conservatives hold her out as a hero who has enabled lawmakers to cut taxes by saving billions through smart budgeting. But in Florida -- where she worked until her appointment Monday -- it's not just minority Democrats who grumble about the condition of the state's finances.

"We've created a game of hot potato for future elected officials with our budget," said Florida state Sen. Tom Lee, the incoming Republican Senate president. "The music is going to stop soon, and someone is going to be left with a big problem."

Lee describes Donna Arduin as a "classy lady," capable of solving the problems in any budget if the right political leadership is in place.

But like many other frustrated Florida Republicans in the GOP-controlled Legislature, Lee says Arduin's legacy there includes having helped Gov. Jeb Bush paper over budget gaps to permit tax cuts the state cannot afford, setting off funding shortages for critical government services.

In California, Arduin is taking on a state budget shortfall that could easily balloon past $25 billion, thanks to a chronic imbalance between spending and revenues and legally dubious borrowing.

Campaign strategist Mike Murphy first suggested that the new administration consider Arduin, whose work he knew from Michigan, where they both had jobs in the early 1990s. Schwarzenegger's transition chief, Rep. David Dreier (R-San Dimas), was impressed by rave reviews of Arduin, and then by conversations with her.

"She likes to say this is the Super Bowl of budgeting, to deal with the kind of challenge California faces," he said.

Arduin took a leave from her Florida post last month to perform what Schwarzenegger called an "audit" of California's books. The work in progress is more a study of state spending to help set budget priorities.

"We're looking through the books, working with staff around Sacramento and asking questions about fiscal policy, fiscal management, data gathering," Arduin said recently. "We plan to show him the best practices from other states."

Repeat Audits

Some officials question whether much more light will be shed on the books since the team assigned to work with Arduin -- 10 or so GOP legislative fiscal specialists -- already did their own audits during the last budget season. Those efforts concluded that balancing the budget without new taxes would require major reductions in higher education and social programs that most voters do not want cut.

Arduin, however, is confident that the audit will be valuable.

"Sometimes you just have to know what to ask," she said. Arduin declined to share any of what has been uncovered to date, and staffers for Schwarzenegger said her report might not even be made public despite the governor-elect's campaign pledge on the day he appointed her to "open up the books and let the people look inside." They said the findings would be reviewed for Schwarzenegger by former Controller Kathleen Connell, former Treasurer Tom Hayes and Stephen Moore of the Cato Institute, a conservative think thank.

Arduin, 40, is alternately described as brilliant, tough and loyal to the point of mistrusting those outside a small partisan circle. And she is also cautious: When interviewed for this report, Arduin fielded questions on a speakerphone, with a staffer for the governor-elect also in the room. Most questions were met with a long silence, followed by curt answers.

"She does not climb on top of the Capitol to let you know what is going on," said Doug Wiles, Florida's House Democratic leader. "But she is there and her tentacles reach into every aspect of state government."

Arduin's specialties: deep reductions in social service spending and privatizing government. She has championed what is known as performance-based budgeting, by which agencies must reach certain goals or they will not get all the money they want the next year.

"When policymakers are working on their budget, it is now much easier for them to see how well a program is performing versus the amount of money being spent on it," Arduin said. Prison heads are held accountable for recidivism rates at budget time, she said, and educators must address trends in test scores.

Bush credits her with helping to keep Florida's budget in check as the economy declined and such states as California continued to spend as if it hadn't.

"Donna has protected and built Florida's financial assets while instilling the fiscal discipline required for long-term strength and stability," Bush said in a written statement.

Arduin's strategy has involved deep cuts in many services, the kind most California lawmakers -- and even, to an extent, incoming Gov. Schwarzenegger -- have said they will resist.

Over the summer, Florida froze enrollment in its health insurance program for low-income children. The waiting list has so far grown to 60,000, with 3,000 more being added weekly.

The state also eliminated Medicaid payments for dental work for 26,000 adults as well as payments for eyeglasses and hearing aids. Adults at the federal poverty level were long ago cut from the program -- it's now restricted to those whose earnings fall 12% or more below.

No such cuts have made it past the Democratic-controlled Legislature here.

Education also took a hit, even as Florida struggled with rates of high school graduation and college degrees per capita that are among the lowest in the country.

State payments to Florida community colleges have dropped nearly $500 per student over the last two years, to $2,593 -- about half what Sacramento kicks in per California student.

In March, the U.S. Census Bureau ranked Florida 34th among the states in spending per K-12 student, based on data from 2001. California ranked 10th.

Florida Senate Appropriations Committee Chairman Ken Pruitt, a Republican, traveled the state in a yellow school bus a few weeks ago to crusade against the budget's "faltering commitment" to education. When the state School Boards Assn. gave the Florida budget a D- for school funding, the Republican lawmaker said they must have been grading on a curve because it really deserved an F.

Pruitt suggested that education was suffering at the expense of "corporate welfare" -- a reference to a plan to spend $310 million to lure a research center to Palm Beach County amid the budget crunch.

Although Florida's latest budget allocates more money for K-12 schools, the state also undercounted enrollment by more than 10,000 students, leaving local districts to absorb much of that cost. And more than half of the $240-per-student increase will go to paying for caps on class size recently approved by voters over Bush's objections. California installed a similar program under former Republican Gov. Pete Wilson.

The state education commissioner is calling for repeal of the ambitious class-size law, warning that schools simply cannot afford it.

Finance chiefs tend to be technocrats who are just as comfortable working for a Republican as for a Democrat, but that's not Arduin's reputation.

Unwavering Views

"Donna has strongly held views on the relationship between government and the taxpayers," said Robert Ward, director of research for the Business Council of New York State Inc., an advocacy group supported by 4,000 companies and chambers of commerce. "She believes there is a point where taxes hurt families and businesses."

Libertarian leaning think tanks applaud Florida's strides in privatization that have been achieved with Arduin's help. They often point to a system in which schools with poor test scores provide students with vouchers they can use at other public and private schools. And schools that make gains in test scores get more state money.

Thanks to the state's aggressive privatization program, Florida now ranks 47th in public employees per capita. California ranks 44th. Florida is about to be one of the first to put its personnel department into the hands of a private firm, with a seven-year contract that cuts costs from $450 million to $278 million. And government officials say the privatization of prisons is leading to savings of as much as 7%.

After graduating with honors from Duke University, Arduin worked for several years at banks in New York, with a short stint in Tokyo before entering public service.

In 1992, she became chief deputy budget director in Michigan, where she stayed two years before leaving for New York. She says on her resume that she helped Michigan eliminate a deficit of more than $700 million, cut taxes by even more and scale down the state workforce.

Sharon Parks, a budget analyst with the nonprofit Michigan League for Human Services, said the numbers are accurate, but added that "they slashed a ton of programs to get there," including eliminating welfare for 83,000 adults in 1992.

In New York, where Arduin was deputy budget director, she helped Republican Gov. George Pataki convert the windfall from a booming economy into billions of dollars in tax cuts.

They included a nearly 1 percentage point rate reduction in the income tax for high earners, a major reduction in an energy tax and a sales tax cut.

Arduin also helped the state reduce its payroll by about 7% and find costly flaws in the way it was spending Medicaid money.

Patti Woodworth, budget director in New York and Michigan when Arduin worked in those states, says Arduin knows "where the levers are you can use to get control of the budget."

"She is very methodical," said Woodworth, who has known Arduin since she worked as a summer intern for David Stockman at the federal Office of Management and Budget during the Reagan administration.

Arduin moved to Florida state government in early 1999.

Among the people she admires: Florida Rep. Katherine Harris, who as secretary of state was at the center of the ballot controversy in George W. Bush vs. Al Gore in 2000 and emerged as a GOP hero. Last Christmas, Arduin bought 14 copies of Harris' self-help book.

Opposite of Laid-Back

With a sometimes brusque manner and a reputation for formal dress, Arduin often stood out in the laid-back state capital city of Tallahassee, say those who know her. Twenty miles from south Georgia's border, the genteel government and college town has all the characteristics of the Deep South, with no big city nearby. She spent most of her weekends several hundred miles away in more cosmopolitan Fort Lauderdale.

In the stands for a recent rainy college football game in Tallahassee between rivals Miami and Florida State, as jersey-clad fans cheered wildly, Arduin stood evenly in a designer outfit with Seminole (as in FSU) colors under an umbrella held by her lobbyist boyfriend, who represents an array of groups that include police, private prisons and public utilities.

There is debate about whether Arduin's claim that "Florida's fiscal management practices are tops in the country" holds up.

Incoming Senate President Lee made a blistering attack on this year's Florida budget in a floor speech when it was approved in late May.

"There isn't a human being in this Capitol, not one, who can show you a financial plan for how we're going to build our budget next year," he said. "I have voted for my last budget in the state of Florida that's put together with Band-Aids and paper clips."

The Band-Aids in the $52-billion budget Lee was talking about included the use of $1.3 billion that will be available to Florida only this year to pay for annual expenses such as education. That means next year's budget starts with a shortfall.

The state moved $840 million out of accounts for specific purposes, such as transportation and repairing beach erosion, and used it to keep the budget afloat.

Much like California, Florida has used short-term budget repairs.

Arduin rattles off procedures she says Florida has in place to avoid the kind of spiraling deficit California has experienced. A requirement to make midyear spending reductions if revenues drop below projections might have forced policymakers to deal with the crisis here earlier.

Arduin's supporters say the unconventional accounting is trivial compared with the dubious financing schemes lawmakers have hatched in California.

A common refrain among Florida Republicans is "Thank God this is not California."

Times staff writer Jeffrey L. Rabin contributed to this report.

For The Record Los Angeles Times Wednesday November 05, 2003 Home Edition Main News Part A Page 2 1 inches; 48 words Type of Material: Correction Donna Arduin -- In Tuesday's Section A, a caption that ran with a photograph of Donna Arduin, Gov.-elect Arnold Schwarzenegger's choice for state finance director, said it was taken after the appointment was announced. In fact, the photo was taken last month when Schwarzenegger announced his transition team.
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