Panetta to Lead State Panel on Revamping Fiscal Structure

Gov. Gray Davis on Tuesday appointed Leon Panetta, the former White House budget director and chief of staff under President Clinton, to lead a bipartisan panel that will advise the governor and lawmakers on reshaping California’s shaky fiscal structure.

Panetta said he hoped to assemble a team of experts to make recommendations before the governor’s next State of the State speech, scheduled for January. But he acknowledged that it would be difficult to enlist Republicans before the effort to recall Davis is resolved by an Oct. 7 special election.

“There’s no question the serious effort here is going to have to come after the recall effort,” Panetta said in a conference call with reporters.

Republicans criticized Davis for waiting too long to act and suggested that he was motivated by the looming recall vote.

“It’s no surprise that, once again, Gov. Davis waited too long to act on a crisis to have any measurable effect,” said Assembly Republican Leader Dave Cox of Fair Oaks. “Appointing a task force always sounds like a good idea, but the shelves are stacked with many reports from previous task forces that offered good ideas to address structural reform, and they sit collecting dust.”

Panetta said the panel would put everything on the table in its discussions, including the Proposition 13 cap on property taxes, voter-approved spending mandates and the impact of regulations on businesses. He joked about the political sensitivity of tampering with Proposition 13, as Republican gubernatorial candidate Arnold Schwarzenegger discovered recently when one of his advisors, investor Warren E. Buffett, suggested that California needed to raise property taxes.

“You want me to walk into Warren Buffett’s trap, huh?” Panetta said, laughing. “When I say everything’s on the table, I mean everything’s on the table.”

Administration officials said Republicans had thwarted the Democratic governor’s attempts to move earlier on his restructuring goal, which he laid out in general terms in January. Davis had planned to unveil the panel when he signed the 2003-04 state budget last month, but prominent Republicans have refused to serve on the committee, administration officials said.

“As I have said many times, California needs a new fiscal blueprint,” Davis said in a statement Tuesday. “For too long, our state has been at the mercy of boom-or-bust cycles in the economy. This problem must be fixed for our long-term financial health.”

Panetta said that he had discussed the panel with Davis for months and that he had insisted he be given the authority to pick his own bipartisan team, subject to the governor’s approval. Panetta said he envisioned a committee of seven or eight members and would seek foundation support to fund their work. He did not name any prospective panelists.

Panetta characterized California’s existing fiscal structure as “a very complex and disjointed system.” Lawmakers and other state officials are handcuffed by voter-approved spending requirements and political orthodoxy that has reduced the budget process in Sacramento to partisan trench warfare, he said.

“There are no simple or magic answers here,” Panetta said, describing his goal as a “fair, balanced and politically workable” solution.

Financial experts say the solutions to California’s fiscal crisis are relatively simple, but politically unpalatable. Republicans generally see cutting government spending as the solution to the state’s fiscal problems while Democrats generally favor increasing taxes.

“You can get a hundred policy and political people in Sacramento to agree we need structural reform, but as soon you open your mouth on what it should entail, the battle lines are drawn,” said Jon Coupal, president of the Howard Jarvis Taxpayers Assn., a conservative group founded by a co-author of Proposition 13, which fundamentally changed California’s tax structure by capping the rate of increase in property taxes.

The association has endorsed Schwarzenegger’s candidacy to replace Davis in the recall.

Coupal’s dim view of Panetta -- who is widely respected among Democrats -- underscores the deep political differences in the debate over California’s fiscal problems.

“Leon Panetta is certainly not on my list of taxpayer advocates,” Coupal said. “He doesn’t inspire confidence from a fiscal conservative’s perspective.”

Panetta’s group will be only the latest in a string of commissions formed over the last decade with the goal of fixing the structural problems in the state budget.

Others have included the California Citizens Budget Commission, the Constitution Revision Commission and the Advisory Commission on Cost Control in State Government. Only months ago, the Senate formed another committee to study the roots of the widening gap between state spending and tax collections, and the Assembly formed its latest committee last year.

Participants in these groups said they doubted that the Panetta panel would produce any new ideas. Previous fixes have been announced with fanfare only to fizzle quickly when they emerged in bill form and special interests launched their lobbying attacks.

“I’ve probably been on seven of those commissions since 1995,” said Steven Szalay, executive director of the California State Assn. of Counties.

Beyond the fundamental issue of whether to fix the system with more taxes or more long-term cuts in government programs, would-be reformers find that even what appear to be the most benign suggestions would produce winners and losers -- and therefore advocates and opponents.