Schwarzenegger Would Do Well to Do the Math
“Nobody likes what the government does when it’s described as ‘spending.’ ”
Those are the words of former Treasury Secretary Robert E. Rubin, drawn from the text of his forthcoming memoirs. Although Rubin’s nominal subject is the war he waged with conservative Republicans as a Clinton administration official, his perception is a useful key for decoding what Gov. Schwarzenegger calls, so very hopefully, his “California Recovery Plan.”
As laid out since the inauguration, the plan calls for a massive mortgaging of the state’s accumulated deficit, yoked to an annual spending cap to be chiseled into law by ballot initiative. On the other side of the ledger, there will be a huge increase in the annual state deficit thanks to an enormous -- let’s call it for what it is -- tax cut.
To be truly effective, the spending cap Schwarzenegger contemplates would have to hold the budget well below the level where existing programs would place it in coming years. Nevertheless, his plan is entirely destitute of the kinds of details that might tell the Legislature -- or the voters -- which programs he wants to jettison.
For all that the governor expresses his desire to usher in a new day for California, this is, as Rubin reminds us, the essence of politics as usual. People are all for cutting the budget, just not the parts of the budget they like.
This brings us to the question of what the recall election was really about. Schwarzenegger and other politicians have decided it was an expression of the public’s insistence on cutting government “spending.” To that I say, in a word: Izzatso?
What particular “spending” the electorate wishes to cut has always been as elusive as the Yeti. Indeed, there’s plenty of evidence that a large majority of Californians approve of the state programs that get most of the money.
Consider a survey taken in late May by Mark Baldassare of the Public Policy Institute of California.
Baldassare asked people for their opinions of state programs in four categories. By an overwhelming margin, they said they were opposed to cutting expenditures on public schools, health and human services and higher education. Altogether, these account for more than 80% of the current year’s state budget.
The respondents were narrowly in favor of cutting spending on prisons (7% of the budget), but that may well signify a distaste for the lavish union contracts Gov. Davis meted out to prison guards in return for their electoral support rather than a more liberal attitude on criminal justice, which would really save money.
Baldassare didn’t ask people how they felt about spending on debt service -- the interest and principal on the state’s borrowings -- possibly because there’s no choice in the matter. This category accounts for 3.4% of the current budget, and would be nearly 5% if the annual cost of Schwarzenegger’s proposed 30-year bond were added in.
There goes 90% of the annual budget (including prisons). What’s left? The balance covers quality-of-life programs such as parks, recreation, public safety and environmental protection. The betting here is that if Baldassare had asked, his respondents would give thumbs-up on saving all of that.
In any event, those programs are shoehorned into less than 10% of the budget. No governor can close the state’s annual budget gap of $10 billion a year out of that segment, because it comes to only $7.3 billion.
Thus, by playing to the public’s abstract dislike for spending while overlooking its fondness for individual programs, Schwarzenegger has finessed one-half of the budget crisis. The other half is our citizens’ reluctance to pay the price of the services they insist on.
When Baldassare asked people about taxes, he found strong opposition to raising the income tax, the sales tax and (especially) the car tax, without which the budget can’t be financed. Respondents expressed overwhelming support for raising the cigarette tax, but in abstemious California this falls into the category of sticking it to the other guy, just as hotel taxes are all about sticking out-of-state tourists. (Never mind that most Californian tourism is in-state, and that Californians get stuck plenty, in their turn, when they travel over the state line.)
There’s no way around the fact that Schwarzenegger brazenly pandered to the electorate by rolling back the car tax, widening the budget gap by an annual $4 billion with the stroke of a pen.
(In his inaugural speech, incidentally, Schwarzenegger said he was repealing the “300% increase” in the car tax. The car tax had been tripled, which of course is a 200% increase. This may sound like nitpicking, but isn’t anyone alarmed at the thought that Schwarzenegger’s people, drafting an ostensibly epoch-launching speech, allowed a simple arithmetic error to go through because the bigger number might have sounded politically more rousing? Are they going to do all the budget math this way?)
What’s remarkable is that Schwarzenegger took action against the car tax despite abundant evidence that this would be a fiscal disaster. As his new state finance chief, Donna Arduin, reported over the weekend, at its current level of spending and taxation (with the car tax reduced) the state is destined to incur an embedded annual deficit of more than $14 billion.
That Schwarzenegger ignored the fiscal implications of this tax cut, while pledging not to raise any other levies to make up for it, leads to one of two conclusions.
Either he is genuinely heedless of the straits the state budget is in, or he is hoping to make the situation so bad that the Legislature and voters will accept truly draconian budget-cutting measures.
What might these be? Judging from Arduin’s record in Florida and New York, no one should be surprised if they include deep cuts in public health spending and other social services, extensive outsourcing of public functions and squeezing of funds for public education.
The new governor’s preferences among these unpalatable choices isn’t known, because he didn’t volunteer any on Monday, despite having a worldwide audience for his inaugural address.
Most commentators gave Schwarzenegger a pass on the numbing vapidity of that speech, on the grounds that most inaugural speeches are equally bereft of genuine prescriptions.
But that was true of “the old politics,” which, according to everything I’ve been reading, California is supposed to have left behind. We’ve heard Schwarzenegger talk plenty about the need for “new ideas” this week, but thus far all we’ve actually seen is the same old pap.
Golden State appears every Monday and Thursday. Michael Hiltzik can be reached at firstname.lastname@example.org.