The state’s money woes will trump its big plans

There is n-o m-o-n-e-y.

California’s state government is i-n d-e-b-t and the hole is getting deeper.

We should change the name of this state to “Denial.”

Unless the politicians and voters are willing to raise taxes, forget all these grandiose new government programs Sacramento has been yakking about concerning healthcare and education.

In fact, forget them anyway for now. Tax increases will be needed just to pay for what the governor, the Legislature and the voters already have saddled on the state.

Nonpartisan Legislative Analyst Elizabeth G. Hill confirmed Wednesday what previously had been leaked by the Schwarzenegger administration: The red ink is spreading fast.

Balancing the state budget for the next fiscal year -- honestly balancing it -- will require nearly $10 billion in tax hikes and/or spending cuts, Hill reported in her annual California Fiscal Outlook. Put simply, she projects a 4.6% rise in revenue but a 7% increase in general fund expenditures of $111 billion.

Blame mostly the sluggish economy, particularly the housing slump that has resulted in lower property taxes and, therefore, an increased burden on the state to fund schools. That’s how Proposition 98 works.

It’s starting to look like a reprise of the Gray Davis era.

The former Democratic governor spoke to the Sacramento Press Club on Wednesday and offered some advice for Capitol politicians: Enact a spending limit that requires them to set aside money in good times to spend in bad times. Until that is done, he said, “governors yet unborn” will face the same deficit dilemma that tormented him -- contributing to his recall -- and continues to plague Gov. Arnold Schwarzenegger.

“Nobody has repealed the business cycle,” he said, stressing the inevitability of booms and busts.

But ponder what’s happening currently in Sacramento: Think-tankers, interest groups and politicians are proceeding blissfully with the merry notion that 2008 -- as Schwarzenegger promised last spring -- will be “the year of education reform.”

The governor proclaimed this after a blue-ribbon report -- written by academicians, funded by foundations and requested by Sacramento -- asserted that public schools would need at least 40% more money, roughly $23 billion, to boost student achievements to acceptable levels.

Of course, the report also called for structural reforms in education. Money alone cannot fix the problem, it said. But politicians took one look at the price tag, gulped and shelved the report for future reading.

Now, another blue-ribbon commission -- this one appointed by Schwarzenegger -- reportedly is about to recommend that he and the Legislature boost school spending by billions. One suggestion, according to people who have read a draft report, is to invest an additional $5 billion in teaching English learners and children of low-income families. Another recommendation is a $1.1-billion expansion of preschool, only partly paid for by delaying the start of kindergarten.

Like the first report, the latest one will stress systemic “reforms.” Several will be controversial, such as eliminating most state-mandated “categorical” programs and rewarding teachers based on their students’ improvements.

But nothing will be more controversial, I suspect, than the price tag, especially since this is one spending package -- unlike new freeway lanes -- that cannot be put on the credit card.

In the real world of deficit spending, schools will be fortunate to hang on to what they’ve got. They claim roughly 40% of the state general fund and are an inviting target, even if protected by a powerful lobby.

At least with healthcare expansion, much of the $14-billion program would be self-financed -- for a few months, anyway, until medical costs soared beyond the revenue stream.

Hospital taxes, matching federal funds, employer fees and consumer premiums would pay for most of the medical coverage. These are dollars that couldn’t be corralled to help balance the budget regardless of healthcare expansion.

But there’s still a necessary and elusive healthcare funding piece that could be used for budget balancing. Schwarzenegger has proposed leasing the lottery. Democrats have suggested a $2-per-pack cigarette tax. Neither is realistic, especially when every new nickel will be needed to pay for current spending.

If I were advising the governor -- and why not, somebody needs to deliver the bad news -- I’d tell him to pull the plug on healthcare reform.

Davis told me he disagrees. “He should seize the moment,” the former governor said of Schwarzenegger. “This is an opportunity to do something on a global scale. He could phase it in.”

But Schwarzenegger isn’t a phase-in guy. He demands it all at once. Besides, Davis didn’t know how to pay for it either.

So this governor should announce that he has given it his best effort for the past year. His door will remain open for anybody with a practical plan. But now he must focus on a genuine crisis of pending bankruptcy. Nothing really can be done to improve the lives of Californians until state government becomes fiscally sound. That trumps all other issues, although water’s still a close second.

Education financing -- Proposition 98 -- should be part of budget restructuring. The roller-coaster tax system should be overhauled to make it less vulnerable to economic booms and busts. The sales tax should be extended to services. The car tax should be returned to the level it was for decades. Every spending program should be picked apart.

The Capitol politicians should call a time out. Talk about the fundamentals. Until there’s a new budget strategy, fancy plays are u-s-e-l-e-s-s.

george.skelton@latimes.com