Red-ink realism

What’s the big deal about resolving California’s perpetual budget deficit? Just spend less money. That’s what Arnold Schwarzenegger told voters in 2003, and he made it sound easy.

Now that the dimensions of next year’s projected revenue shortfall are becoming clear, it’s hard to know whether to wrap Schwarzenegger in a warm blanket of sympathy as the governor finds himself in the same trap that ensnared Gray Davis and most of his predecessors, or to throw stones at him for asserting, falsely, that he had made significant headway on the state’s budget mess.

Come to think of it, hand us a rock.

Economic cycles are a given, and there is no point in feigning surprise when boom times are followed by busts. California was hard hit when aerospace tanked in the 1990s. The economy recovered with the dot-com boom. That bubble burst on Davis’ watch, leaving Schwarzenegger to ride the housing boom, which now has gone bust.

Republican senators who held up this year’s budget because the governor hadn’t slashed enough are getting into full I-told-you-so mode. But the state’s budget woes don’t lend themselves to the simplest conservative solutions, which include cutting revenue while cutting spending. Schwarzenegger set his own budget problem in motion with his focus on slashing the vehicle license fee -- the car tax that since 1948 assessed owners 2% of their vehicles’ value.

The fee was reduced during the dot-com boom but was supposed to be restored in time of economic need. When Davis restored it, Schwarzenegger used that action to drum up recall fervor and get himself elected. He then re-cut the car tax, erasing nearly $4 billion from the budget, and he and the Legislature are still slashing revenue. This year they made it easier for buyers of yachts and recreational vehicles to evade sales taxes.

With less money for public safety and education, voters respond with spending mandates, like Proposition 98, that damage the governor’s flexibility to craft acceptable budgets. Solving the budget problem means untangling the knots into which California has tied itself, and that takes bold, courageous leadership -- which is what voters expect from Schwarzenegger but which he has, on this issue at least, not yet provided.

He’s working on it. To offer substantive reform, he must present California with more than just a spending cap of the type voters rejected in 2005, and instead show how to restructure state finances into something more rational and sustainable. That requires the kind of frank conversation that’s hard in the best of times. It will be even harder now, when revenue is leaner and interest groups cling ever more tightly to the dollars guaranteed them under the state’s jury-rigged budget process.