Gov. Goes Along to Get Along

He came to office as the antidote to former Gov. Gray Davis. But Arnold Schwarzenegger is making many of the traditional Capitol compromises, saddling the state with future budget shortfalls, appeasing special interests and inviting comparisons with the man he ousted.

Nearing completion of his first state budget, Schwarzenegger is settling into a pattern. He plunges into issues one at a time. After defining the terms of victory, he stages lavish events celebrating another promise kept or deal struck. But in case after case, analysts see opportunities lost to political caution.

“He’s coasting. He’s doing well. He’s a smart guy, but I don’t think he’s solving any real problems in this state yet,” said John Allswang, a professor emeritus at Cal State L.A. who is an expert on California politics and the initiative process. “The indebtedness of the state and the danger of the budget are huge.”

The state’s nonpartisan legislative analyst’s office released a report in May that said the state was facing heftier shortfalls, in part because the governor, bowing to political pressures, abandoned promised cuts and proposed savings in the budget he put forward in January.

“The long-term fiscal outlook worsened as a result of the governor’s proposals,” Elizabeth Hill, the state legislative analyst, said Tuesday.

If the yardstick is Schwarzenegger’s popularity, the approach is working. Polls show his approval rating near 65%.

But the public remains restive about California’s future. One statewide poll in late May showed that by a margin of 51% to 37%, voters believed the state was on the wrong track.

The state budget emerging from the Legislature in the next few days offers one of the clearest examples of how the governor has avoided hard choices and drawn back from confrontations that might be necessary to push through lasting reform.

Schwarzenegger’s $103-billion budget relies on billions in borrowing. It is precariously balanced through accounting maneuvers and one-time-only income -- the same wobbly foundation that made the Davis budgets so reviled.

Because the budget fails to reconcile the chronic gap between what the state spends and what it takes in, California is expected to face multibillion-dollar shortfalls down the road.

“It hearkens back to how Davis resorted to closing the budget: the gimmickry and borrowing and cajoling,” said Jaime Regalado, executive director of the Edmund G. “Pat” Brown Institute of Public Affairs at Cal State L.A. “We’re not seeing much difference. He’s carrying forward what Davis had done, but with panache.”

At a news conference Tuesday, the governor was asked about parallels to Davis. “You really know how to hurt a guy,” he said.

No amount of finesse from Schwarzenegger could quickly resolve the stubborn problems he inherited after taking office in November.

He succeeded a governor who was fired by the voters after running up a deficit nearing $40 billion. Change on the sweeping scale that Californians might expect takes time.

Pointing to Progress

Even so, those in Schwarzenegger’s camp point to progress in multiple arenas: a legislative deal that would cut workers’ compensation costs, an agreement with Indian tribes that guarantees the state a piece of casino winnings, passage of two ballot measures (Propositions 57 and 58) aimed at stabilizing the state’s finances and a budget negotiated with minimal rancor.

“The people care about working together,” Schwarzenegger said Tuesday. “Democrats and Republicans. Business leaders and labor. Everyone is coming together. That’s what this is about. There’s a whole new mood in Sacramento. Business as usual, politics as usual, is out the window.”

Rob Stutzman, the governor’s communications director, said: “Unless we’re missing something, we think the people of California are happy with the general direction, a new competency that’s being brought to Sacramento. And the only thing that’s changed since a year ago is the governor.”

In a speech laced with his trademark optimism, Schwarzenegger told workers at a Boeing plant this spring, just before signing the workers’ comp bill: “From the first day on in my administration, I said that for the people to win, politics as usual has to die. And this is exactly what we did on Proposition 57 and 58. This is exactly what we did on reforming our workers’ compensation, and this is what we will do on the budget, and this is what we will do on energy, on prison reform, Indian gaming and education. We will do it over and over and over again, because everything is possible.”

A dissection of some of these same policy thrusts by Schwarzenegger’s administration shows that the successes aren’t always so clear-cut.

Last week, at the elegant Sacramento Memorial Auditorium, Schwarzenegger announced a deal with five Indian tribes in a ceremony that resembled a peace accord between nations.

Solemn speeches were given. Gifts were exchanged. Looming in the background was a sign: “Promises Made; Promises Kept.” During the recall campaign, Schwarzenegger pledged to extract money from the tribes, saying they were giving nothing back to the state while manipulating politicians through campaign contributions.

Coming Up Short

What he delivered fell short of his projections. His budget for the fiscal year beginning Thursday assumes the state will take in half a billion dollars a year from the Indian negotiations. The deal brings in a one-time payment of $1 billion, which Schwarzenegger is setting aside for road improvements -- a choice made in part to ensure swift ratification by legislators who want the projects for their districts.

But the annual payments from the five tribes would be about $150 million a year -- 30% of what the governor projected. One of the carrots offered to the tribes is expansion: In return for a fee, they can add as many slot machines as they want.

Yet tribes with no need to expand have little reason to take the deal; there is no financial incentive. As a consequence, critics fear that some Indian casino revenue might go untapped.

The budget is another case in which some analysts contend that Schwarzenegger maneuvered to protect his political standing rather than use it to bring needed change.

California’s budget is expected to be signed after the new fiscal year begins Thursday but is still on track to be completed weeks earlier than in past years. One reason is that the governor sidestepped a potential source of friction with lawmakers by not insisting on deeper spending cuts or new taxes.

He could do that in part because, three months ago, he persuaded voters to approve $15 billion in borrowing that came with no strings attached.

The governor has shown repeatedly that when opposition to one of his proposed cuts builds, he’ll back down. He did it in December when he suggested and then dropped spending reductions for the developmentally disabled, and he did it last week when he abruptly changed course on cost-cutting for animal shelters.

A malleable approach to policy comes at a cost. In the absence of deeper cuts or new revenue, the state is looking at a future shortfall of $6 billion, according to the legislative analyst’s office.

“It’s easy to [reach a] compromise between the two parties by agreeing to borrow -- by saying you won’t increase taxes or reduce expenditures but say you’ll borrow for the difference. That’s what’s happened for the last few years now,” said David Hitchcock, an analyst with the rating agency Standard & Poor’s.

One way the governor avoided new taxes was by privately negotiating side deals with colleges, universities, cities and counties. He has promised them more money down the road in exchange for cuts that lessen the need for a tax increase.

For Schwarzenegger, the deals were of immense political value, neutralizing a potential source of opposition to his budget. Education and government officials who might otherwise have protested the cuts were bound to defend them.

Yet some contend that the downside of Schwarzenegger’s approach is twofold: By locking himself into specific spending commitments, the state will have less discretion in future years. There is also the question of where the money will come from down the road.

‘Future Costs’ Cited

“The current governor has saddled the state with future costs far in excess of those in Davis budgets,” said Jean Ross, executive director of the California Budget Project.

Ambitious plans have been downsized or discarded, such as Schwarzenegger’s call to make new state employees contribute more to their own pensions. Savings to the state would have been used to repay $929 million that he is borrowing to cover California’s contribution to the employee retirement system.

When the powerful public employee unions balked, delaying passage of his budget, Schwarzenegger yielded. He compromised instead with an accounting change that rests on the hope that thousands of new state workers will pocket a cash payment rather than accept two years’ worth of state pension contributions that would go toward retirement.

Schwarzenegger initially had sought to slash salaries awarded to the politically powerful prison guards union by $300 million. On Tuesday, he said the California Correctional Peace Officers Assn. concessions would amount to only about $108 million -- spread over two years.

A major campaign theme was that workers’ compensation costs were too high. The governor dismissed Davis’ attempt last year to reduce costs as “bogus.” At one point, Schwarzenegger threatened to support an initiative that would overhaul the insurance system. But he wound up instead supporting a legislative compromise that was considered more modest.

Something similar happened when Schwarzenegger sought to permanently scale back what the state spends.

When legislators resisted, Schwarzenegger retreated. He could have gone to the ballot in November with a hard spending cap, as some of his advisors hoped he would do. Instead, he accepted a squishier balanced-budget amendment favored by Democrats that allows spending to grow as long as revenues keep pace. A reserve fund was set up for tough economic times, but lawmakers can draw from it on a two-thirds vote.

At a news conference in December after the deal was announced, then-Assembly Speaker Herb Wesson (D-Culver City) was asked if Democrats had bested Schwarzenegger in the negotiations.

“I’m not crying,” Wesson replied.

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Times staff writer Evan Halper contributed to this report.