In this budget bind, gov. finds hands are tied

Gov. Arnold Schwarzenegger could soon come to regard the epic budget mess he inherited four years ago as a minor nuisance compared to the challenge he faces now.

As he prepares the budget blueprint that he will release in January, the governor is in a bind. There isn’t as much red ink this time, or an emergency cash shortage -- at least not yet. But deals he made to keep the state afloat earlier in his tenure now hamper his ability to take on a rapidly swelling deficit that early projections show will hit at least $10 billion.

Those deals, made when the deficit was substantially larger, put a lock on billions of dollars. Large pots of money that lawmakers have tapped to patch past budget deficits are no longer available to them. The prohibitions are even etched into California’s Constitution, thanks to ballot measures championed by Schwarzenegger.

“There is no question this budget will be tougher” than when the deficit was $14 billion, said Mike Genest, the governor’s budget chief. “A lot of options we had before have been removed.”

The governor has promised that the state would never again raid local government funds, never again borrow money earmarked for transportation and never again balance the budget through borrowing.

Public university students were guaranteed no more surprise fee hikes through at least 2010. Courts were also guaranteed no more cuts. An after-school program the governor pushed costing more than half a billion dollars annually can’t be suspended.

Billions of dollars in potential cuts or funding shifts have been precluded in the last few years. Although the governor has long complained that his ability to tame budget deficits was held in check by “autopilot spending” -- programs that under state law get a set share of the budget -- there is more of it now than ever. And Schwarzenegger is one reason for that.

“We have just tightened the noose around our neck instead of figuring out how to get out of the noose in the first place,” said Hannah-Beth Jackson, a former Democratic assemblywoman from Santa Barbara who plans to run for the Senate next year. “We have all these spending requirements, and they end up working against each other. We can’t take from this, we can’t take from that; we’ve become immobilized.”

Lawmakers have been complaining for decades that voter-imposed budget constraints are a straitjacket, taking away needed flexibility to address fiscal problems as they arise or bring a rational approach to setting spending priorities during good times.

But legislators have played a role in creating the dilemma they face. Citizen ballot initiatives often draw on the public’s distaste for a Legislature perceived as financially incompetent and politically tone-deaf. Only 25% of likely voters trust state government officials to do what is right most or all of the time, according to a September poll by the Public Policy Institute of California.

Lawmakers’ slowness in addressing skyrocketing property tax bills led voters in 1978 to pass the landmark Proposition 13, limiting how much such bills can increase every year. In 1988, voters approved Proposition 98, which set aside about 45% of the state’s general fund for education programs and gave lawmakers complicated rules for allocating it.

“The reason voters lock in spending is because they don’t trust the Legislature to share their priorities,” said John G. Matsusaka, president of the Initiative and Referendum Institute at USC.

Sometimes it’s lawmakers who restrict what can be cut. The governor and legislators placed on the ballot the measures that voters ratified prohibiting the government from touching transportation and local government money.

They did so after taking billions of that money to help narrow the deficit a few years ago. Then they said they would never do it again. But they need money again.

Genest said the governor has no regrets.

“It’s like saying we no longer have the option of robbing banks,” Genest said. “Why should we balance the budget by taking money that belongs to someone else? . . . The government will take from local government, transportation, anyone it can in lieu of making hard decisions.”

Now is the time, Genest said, for hard decisions.

“The governor made these deals fully aware that the day would come when some of us would say we wish we had more options,” he said.

But some question the fairness of a system that protects state money for programs whose advocates managed to get ballot measures passed and leaves other services to be cut to make up the difference. Polls consistently show that, given the opportunity, voters would opt to protect almost everything the state spends money on.

Some interests are scurrying to get ballot measures passed even as the budget ax looms. An initiative that will come before voters in February, Proposition 92, would change the Constitution to protect community college funding and limit future student fee increases.

Senate President Don Perata (D-Oakland), who campaigned for some of the existing budget constraints, now says those requirements have left the state’s budget “fatally broken.” In a letter to the governor in August, immediately after the 51-day budget stalemate ended, he said it was time for Schwarzenegger and legislative leaders to begin the long process of reviewing them and even dismantling some -- which would require voter approval.

“We have finally reached the end of the line,” Perata wrote. “If we don’t seize the initiative now, the same competing special interests who . . . shaped the quagmire in which we currently find ourselves will lead us into another.”

In the meantime, lawmakers are jockeying to use the myriad rules governing state money to their advantage. Fiscal conservatives are hoping the limited options lawmakers now have to close the deficit will bring into sharper focus the need to restrain spending elsewhere. Others are hopeful voters will see that the state lacks the funds to provide all the services they expect, and a tax increase is not unreasonable.

State Treasurer Bill Lockyer says that at minimum, that is a healthy debate to have. And one long overdue after years of the state spending more than it brings in and papering over deficits by shifting funds around from accounts that now cannot be touched.

“The constraints limit our flexibility, but they do not cause overspending,” Lockyer said. “The real problem is tooth-fairy budgeting.”

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evan.halper@latimes.com