Taking off the budget blinders

Republican state Sen. Tom McClintock recalls a meeting with Gov. Arnold Schwarzenegger one year ago. The veteran Thousand Oaks lawmaker tried to warn the governor that he was traipsing down the same deficit trail as his recalled predecessor.

In fact, McClintock cautioned, Schwarzenegger’s path was even more risky than that of Gray Davis.

McClintock showed the governor a chart he had drawn. It illustrated that spending under Davis had increased an average of 7% a year. Under Schwarzenegger, it was climbing at a 10% rate. Similarly, he pointed out, the deficit -- the billions being spent over the revenue coming in -- was larger than under Davis.

According to McClintock, the governor replied: “That is bad news that people don’t want to hear. People want to hear only good news.

“I don’t want to hear pessimism. I’m an optimist.”

Optimism is one of Schwarzenegger’s charming traits. But optimism can be dangerous for someone in denial -- as this governor always has been about red ink.

Last January, Schwarzenegger was prematurely announcing the death of deficit spending.

On Tuesday, the governor finally began delivering the bad news in his State of the State speech to the Legislature. There’s a $14-billion gusher of red ink expected during the current and next fiscal years, he conceded.

“For several years, we kept the budget wolf from the door. But that wolf is back,” he said.

The only one who seemed surprised was the governor. It was like he hadn’t been looking out the window.

The gruesome details will be told today, when Schwarzenegger unveils his proposed budget for the fiscal year starting July 1. Hardest hit are expected to be the most needy, but he promises to whack virtually everyone.

“It’s the ‘Sweeney Todd’ budget,” says Democratic Sen. Sheila Kuehl of Santa Monica, referring to the movie starring Johnny Depp as the 19th century “Demon Barber of Fleet Street,” a serial killer. “The budget will be a protracted blood bath. Everyone gets their throat cut and dumped in the basement.”

It was a fitting day for a speech that may have sounded like a horror movie. Rain poured, winds howled, windows rattled.

Legislators looked glum, rarely applauding the governor and then only politely.

“The consequences of cuts are not just dollars, but people,” Schwarzenegger observed, saying he already had personally given advocates for the needy a heads-up about his proposed program-slashing. “Talking about fiscal responsibility sounds so cold when you have a representative for AIDS patients, or poor children, or the elderly sitting across from you.”

Yes, governor, and there’s absolutely no way to make yourself sound warm and fuzzy -- or responsible -- when you’re denying benefits to the aged, blind and disabled while guarding tax loopholes for corporations and yacht buyers.

Schwarzenegger had a good point when he complained about California’s roller-coaster tax system: “The rich in California, by far, pay most of the income taxes. But we only have so many rich people. The top 10% of our population -- those making more than $119,000 a year -- pay nearly 80% of the taxes. So our whole revenue system, its ups and downs, is based on whether the rich have a good year. . . . We need more stability.”

Right. But he offered no solution for the tax volatility.

The tax system needs to be restructured and modernized -- flattened out -- with the middle class kicking in more of its income, the sales tax being extended to services and commercial property being taxed closer to market value. But Schwarzenegger has no stomach for any of that. Nor do most politicians.

Although Republicans and Democrats generally agree that Schwarzenegger has been wearing budget blinders, they’re far apart on a solution. Republicans -- joined by the governor -- insist that the budget can be balanced without raising taxes. Democrats are afraid to utter the T-word, but most say quietly that some “revenue enhancers” should be considered.

Actually, so does Schwarzenegger -- even if, during his speech, he recited the Republican no-tax mantra: “We do not have a revenue problem; we have a spending problem.” The governor must think there is a revenue problem or he wouldn’t be planning to propose an insurance fee on Californians to help pay for firefighting, as reported by The Times on Wednesday.

Last fall, Schwarzenegger also signed legislation raising drivers’ registration fees to finance alternative fuel research. And he’s advocating a stiff tax increase on cigarettes, plus big fees on employers and hospitals, to pay for his ambition universal healthcare plan.

The governor justifiably grumbled about autopilot spending, much of it ordered by voters seduced by do-gooder ballot initiatives. But Schwarzenegger himself is a culprit: His after-school initiative in 2002 -- before he was governor -- is a $426-million annual burden on the state treasury.

“You can’t finance socially liberal programs with fiscally conservative policies,” McClintock says.

Schwarzenegger’s long-term solution is a proposed “Budget Stabilization Act.” He previously has tried two other versions. One was rejected by the Legislature; the second by voters. The latest rendition was gleaned from former President Clinton during a chance meeting last spring at the Burbank airport.

California’s governor bought off on the Arkansas way: A spending cap with any excess revenue being stashed. So in boom times, the state saves. In bust times, it dips into the savings and the governor cuts spending based on priorities previously negotiated by him and the Legislature.

Sounds reasonable. But no remedy to “Sacramento’s crazy deficit spending” -- as Schwarzenegger called it while running against Davis -- is possible unless tax restructuring and/or tax hikes are part of the prescription.

The state of the state is unstable and sinking. Any salvage will require courage and a thorough overhaul.

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george.skelton@latimes.com