Gov. Leaves T-Word Unsaid as Day of Reckoning Looms

What Gov. Arnold Schwarzenegger chose not to say in his State of the State address was this: If California voters on March 2 refuse to approve his monster credit-card charge, he’ll just have to sock them with a monster tax increase.

It was enough, he decided, merely to warn of “economic chaos” if his proposed $15-billion deficit-reduction bond is rejected. That would force him to pay off this fiscal year’s budget deficit immediately, rather than putting it on the charge-card for at least nine years, at an estimated financing cost of around $5 billion.

Proposition 57 -- the so-called Economic Recovery Bond -- is “absolutely critical,” the governor asserted. It “will save our state from a June bankruptcy.”

But polls show public skepticism about unprecedented long-term borrowing to pay daily expenses. It’s looking like a close call on the ballot. Schwarzenegger, who fancies himself a super salesman, will need to use all his powers of persuasion.

“He’s prepared to use his political capital,” says a Schwarzenegger advisor.

But the governor missed an opportunity in Tuesday’s speech -- when he had practically everybody’s attention, including those tuned into 100-plus TV and radio stations -- to be more forthcoming, to lay it out straight: The only two options open to voters are deplorable borrowing or dreaded tax hikes, coupled with draconian spending cuts even more severe than those he’ll propose Friday for the next fiscal year.

The advisor did acknowledge during a background briefing for reporters that “taxes and more cuts loom” if the bonds don’t pass. But it was decided not to put those words in Schwarzenegger’s mouth.

“Fear and loathing is not part of a State of the State speech,” a strategist says. “People expect the governor to be positive and show leadership. He wants to be upbeat. The bad news comes Friday.”

On Tuesday, there was no hint of any future tax increase. To the contrary, the governor dug himself even deeper into the no-tax hole, shoring up his conservative flank: “A tax increase will be the final nail in California’s financial coffin.... I will not make matters worse.”

Republicans stood and warmly applauded. Democrats sat and rolled their eyes.

This, after all, was merely the opening shot in what will be a months-long budget battle. The Republican governor feels he can’t begin by alienating GOP loyalists. The painful cuts he’ll propose Friday are necessary to assure conservative politicians and all voters that he’s determined to cut whatever fat there is from state government.

Only then -- and after Schwarzenegger grimaces and also carves into the bone of programs vital for students, the low-income sick and traffic-jammed commuters -- will there be the public acquiescence and political courage needed to consider raising taxes, even if just temporarily and on the wealthy.

And that day surely will come. The state, Schwarzenegger reported, faces another deficit during the next fiscal year of a “staggering $15 billion.”

Senate Majority Leader Don Perata (D-Alameda) said of the governor’s anti-tax rhetoric: “When I hear [Sen.] Tom McClintock (R-Thousand Oaks) say ‘no new taxes,’ I believe him. When I hear Arnold Schwarzenegger say it, I believe it’s a negotiating marker.”

Perata noted that Schwarzenegger proved to be an adept negotiator and willing compromiser recently when he and Assembly Speaker Herb Wesson (D-Culver City) drafted the bond proposal and a companion measure to require balanced budgets.

The two measures are linked, so if one fails, the other also goes down.

Even if they pass -- and voters allow the state to borrow its way through the current fiscal year -- there’s very likely to be at least a modest tax hike next year. That’s because, as Schwarzenegger pointed out, Proposition 58 would ban bonds for budget-balancing. “We tore up the credit card,” he said. “Never again will the state be allowed to borrow money to pay its operating expenses.”

Schwarzenegger often rails about Sacramento’s “spending addicts.” But he’s like the borrowing addict who wants just one more fix before getting clean. Wouldn’t it be more prudent and honest for the state to pay as it goes -- by, if needed, both paring spending and raising taxes? Certainly, and that’s what Proposition 58 would require of politicians, including Schwarzenegger.

The governor is reputed to be a skillful chess player, and this is a Capitol chess match. His first moves avoided taxes and cut sharply. His goal is an honest budget next summer that forever stanches the red ink. He’ll need to alter his moves.

Democrat Perata was one of many lawmakers who marveled at Schwarzenegger’s State of the State performance -- the actual words and their delivery. Nothing like it has been observed in Sacramento since the era of Gov. Ronald Reagan.

Simple sentences. A few main points, not a laundry list of issues. No hokey introductions of guests in the gallery. Reaganesque in his optimism.

Ultimately, he’ll need to be Reaganesque on taxes and raise them. But they’ll be less steep if voters OK the credit card.