Gov. Says Prop. 76 Will Let Him Do More With Less

It just has an odd sound, this pitch by the governor for Proposition 76: We must slow down spending so we can spend more.

That’s the way it comes out, anyway -- confusing and illogical on its face.

Political strategists for Gov. Arnold Schwarzenegger must think there’s voter appeal in telling people they can have it both ways: less and more at the same time. Or, regardless of where people come down on the side of spending -- wanting more or less -- they’re covered by Prop. 76.

Schwarzenegger told KABC radio’s Larry Elder recently: “We cannot continue spending more money than we take in.... [Prop. 76] means controlling spending, paying down the debt and balancing the budget without raising taxes.”

But he also told the talk show host: “What is important to me ... is to build the huge infrastructure that we need here. We need to build our roads.... We have to build more schools and more hospitals.”

It’s a constant message: The need to do with less while attaining more.

Interviewed on public television’s “California Connected” last week, Schwarzenegger said:

“Look, we don’t have enough money to build hospitals, ... freeways, bridges. We need more energy. We need to make sure we have the cleanest environment.... We need more water, we need more of everything. And more affordable housing, which is the biggest problem of all.”

Prop. 76 has three main elements:

* A new state spending limit. The goal is to smooth out and stabilize spending over time. The annual budget couldn’t increase by more than the average growth in tax revenue for the previous three years. Any revenue that exceeded the limit would be funneled into a reserve, debt repayment and road or school building projects.

* New budgeting powers for the governor. When revenue fell 1.5% below budget forecasts, he could declare an emergency and cut spending practically any way he wanted if the Legislature failed to act within 45 days. As with any budgeting, it would require a two-thirds majority vote of each house to act.

* A reduction in school funding guarantees. The measure would repeal a requirement that if schools are funded below the Prop. 98 minimum, the lost money must be restored later and figured into the guaranteed base. It also would allow Sacramento to pay above the minimum without the bonus money becoming forever guaranteed, as Prop. 98 now requires.

Schwarzenegger calls it his “live within our means act.”

But how does the state, facing a deficit projected at $6 billion next year, live within its means without raising taxes -- while spending more to build things?

The governor must be a magician.

Actually, Schwarzenegger and his chief fiscal advisor, Tom Campbell, do offer answers for the money mystery. One answer is to borrow more with infrastructure bonds.

The Schwarzenegger administration is considering an ambitious bond program to fix freeway bottlenecks, improve access to cargo ports, shore up Delta levees, upgrade water facilities and quake-proof hospitals.

But the state first should get its cash flow in order, says Campbell, who’s on leave as state finance director to promote Prop. 76. “We’d go to the market with a substantially better balance sheet and bond rating if 76 passes,” he says. “That means lower interest.”

Bonds aren’t paid off with Monopoly money, however. The state already is spending roughly 5% to 6% of its general fund this year -- depending on who’s figures you use -- on debt repayment. That’s $4 billion-plus.

Another reason the state could spend more money on transportation if Prop. 76 passes, Campbell says, is that the governor and Legislature would be forbidden to ever again raid the Prop. 42 kitty. Passed overwhelmingly in 2002, Prop. 42 earmarked the state sales tax on gasoline for transportation.

But both Schwarzenegger and former Gov. Gray Davis conspired with the Legislature to grab $2.1 billion of the Prop. 42 money for budget-balancing.

“The politicians have ripped off the account,” Schwarzenegger complained to me.

But wait! Wasn’t he one of the ripper-offers?

“Look, I have taken over a bankrupt company. So when you take over a mess, there are certain things you have to do,” he said. “But we cannot go on stealing money from accounts.”

Meanwhile, The Times reported last week that Schwarzenegger -- positioning himself for a reelection bid next year when he’ll need Democratic votes -- also wants to focus on health insurance for kids, and homelessness. That could be expensive.

If he’s going to pare back spending growth, not raise taxes, help poor people and build more stuff, something must give. Like education.

Anybody who wants to slow spending growth must start with schools, kindergarten through community college. They get 43% of the $90-billion general fund. Healthcare gets the next largest chunk, 20%, followed by the justice system, 11%; social services, 10%; and universities, 7%.

The role of the school funding revisions in Prop. 76 is to give Sacramento budgeting flexibility. Spending then could be based more on revenue fluctuations and less on school guarantees. This may be a good thing. But don’t claim, as Schwarzenegger did on “California Connected,” that “it does not cut into education at all.”

Nonpartisan Legislative Analyst Elizabeth G. Hill notes that Prop. 76 “would result in a lower minimum guarantee” for schools. Generally, she says, the proposal “would likely reduce state spending over time” and, she adds, “these reductions could shift costs to local governments.”

It’s not clear what all this adds up to. But it’s not less equals more.

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