Option to Raise Taxes Waits in Wings

Arnold Schwarzenegger and Scarlett O’Hara? A reader wrote me that she saw a similarity. Or, rather, she heard one.

This is what the governor told reporters at a movie stunts award event in L.A. Sunday: “I’m worried about this year. People are talking about the out years. This year! This year is where the action is. This year! Then, after we have solved the problems this year, then we go to the next year and we solve the problems.... “

Scarlett at the end of “Gone with the Wind” exclaimed: “Oh, I can’t think about that now. I’ll go crazy if I do. I’ll think about it tomorrow.... After all, tomorrow is another day!”

True, Schwarzenegger was talking about a long-term state budget deficit and why he wasn’t addressing it. Scarlett (actress Vivien Leigh) was talking to herself about how to bring back Rhett Butler (Clark Gable), who had just stalked out declaring, “Frankly, my dear, I don’t give a damn.”

So admittedly there is a reach here. But suffice it that Schwarzenegger and Scarlett are similarly tough-minded and focused on their present predicaments.

A close-enough analogy. Thank you, reader (Elaine).

Around the Capitol, people are starting to compare Schwarzenegger to much worse -- Gray Davis. The recalled governor shoved deficit problems into the future.

Actually, the budget Davis proposed in January 2003 still is the most honest spending plan offered up in years. It contained minimal gimmicks. And it included $8.3 billion in tax increases, all of it going to local governments, which would have assumed state costs of health services. The locals, Republicans and Democrats all screamed and Davis backed off.

Legislative Analyst Elizabeth G. Hill, the nonpartisan fiscal watchdog everybody trusts -- “the budget nun,” she’s sometimes called -- gave a critical review Monday of Schwarzenegger’s new budget revision.

“The bottom line,” Hill wrote, is that the governor’s plan “misses an important opportunity to make more meaningful inroads toward eliminating the state’s long-term structural imbalance -- a persistent gap that the state will not be able to simply ‘grow its way’ out of.... [It] adds to the state’s future spending commitments [and has] resulted in a worsening in the state’s long-term fiscal out- look.”

Hill expressed concern about $20 billion in “outstanding budget-related borrowing,” including $6.6 billion in new borrowing proposed in the latest $103-billion spending plan. (This by a governor who promised to tear up the credit card.) Most of that borrowing, $11.3 billion, comes from the $15-billion budget bailout bond voters gave Schwarzenegger.

With borrowed money, the budget for the fiscal year starting July 1 could be “balanced,” Hill noted. But “a $6-billion operating shortfall would reemerge” in the next year. The state also could almost balance that budget with borrowed funds, she added, but in the following year there’d be “a shortfall approaching $8 billion,” with $6.5-billion-plus deficits into the future.

Her conclusion: “The ultimate resolution of the structural budget problem will require further spending reductions and/or augmentations to resources.”

Augmentations to resources means tax increases, but it’s doubtful you’ll ever hear that suggestion from Hill’s lips. She avoids the line of fire. The closest she’ll come is what she told reporters: “Everything should be on the table, given the magnitude of the budget problem....

“It would be prudent to get our fiscal house in order.... You need to have a big solution.”

The Schwarzenegger administration has been touting a prospective government streamlining as a potential money-saver. But Hill didn’t sound impressed. She’d studied lots of government restructurings from the last 60 years, she said, and they all required “upfront costs.”

Here’s my hunch: Schwarzenegger is thinking ahead -- even if he isn’t sounding or acting like it -- and positioning himself to raise taxes in a year. The script’s no mystery: We’ve done everything we can. We’ve cut waste. We’ve cut to the bone. Now we have no choice. It’s our last resort.

Sure, I know what he told reporters last week: “There is no reason to always keep thinking about taxes as the only solution. That’s the old-fashioned way. There’s another way, and that is let’s be kind of creative.”

But borrowing is not exactly creative. It truly is the old-fashioned way.

I also know that Schwarzenegger already has slashed about as deeply as he seems willing. In fact, he has rescinded several proposed healthcare cuts.

He told Times reporter Peter Nicholas at the stunts awards: “I don’t want to make any cuts. I want to make sure there’s enough money that goes around because there are a lot of programs that are very important: healthcare, children’s programs and for people that are disabled, programs for the homeless.”

My hunch is that Schwarzenegger feels if he can keep his anti-tax pledge for this year and prod the Legislature into passing an on-time budget, his popularity will continue to soar and voters will begin to regain confidence in Sacramento. Then he can raise taxes.

That’s the hunch. I also have a fear: that the governor enjoys the cheers of the crowd so much he’ll never risk losing popularity by spending any of his enormous political capital on a budget-fix. But I don’t dwell on this. Don’t really believe it.

In the long run, Schwarzenegger will listen to Liz, not Scarlett.

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George Skelton writes Monday and Thursday. Reach him at george.skelton@latimes.com