After a delay of record proportions, Gov. Arnold Schwarzenegger and state legislative leaders finally agreed on a deal to close the state’s $19.1-billion budget gap. Except that it won’t. By necessity, it’s another kick-the-can budget that relies on gimmickry to paper over the state’s structural problems, including billions of dollars in borrowing and cost-shifting and quixotic assumptions about tax revenue and federal aid.
It’s doubtful, though, that a better deal could have been produced under the circumstances. The budget process has become an exercise in brinkmanship, with Democrats and Republicans each using the state’s worsening finances to pressure the other side to capitulate. In the end, Schwarzenegger won sizable pension reductions and an expanded “rainy day” fund. Republican leaders successfully held out against tax hikes. And Democratic leaders came away with smaller cuts in social services. In short, the deal doesn’t put the state back on the road to fiscal health, but it keeps the engine running.
We’re reduced to settling for fake budgets in part because lawmakers haven’t been willing to make the large-scale changes in tax and spending policies needed to actually close the yawning gap in the state’s finances. Arguing that taxes shouldn’t be raised when the economy is so weak, the GOP resisted even a proposed levy on oil drilling in the state, maintaining California’s dubious distinction of being the only major oil-producing state without an extraction tax. And Democrats blocked deep cuts in social programs and schools, arguing that the safety net shouldn’t be torn apart and teachers shouldn’t be laid off in the middle of a downturn.
As a consequence, the budget deal relies on ploys that aren’t likely to pan out, necessitating billions of dollars worth of additional fixes early in 2011. More ominously, it continues the practice of shifting costs into future years, complicating the task for legislators down the road. On the bright side, however, the two reforms sought by Schwarzenegger could improve the state’s finances in the long run. The changes in pensions — less generous formulas for calculating benefits and higher retirement ages for many new hires — are significant and welcome. And the increase in the state’s reserve fund is long overdue.
Because that fund was created by a ballot initiative in 2004, it can be fixed only through another ballot initiative. That’s just the latest example of how ballot-box budgeting has made the state’s financial problems thornier. The deal struck by legislative leaders lessens some of those problems, though not all of them. But at least it ends, for now, the game of chicken in Sacramento that was only making matters worse.