In Washington’s game of chicken, California has plenty at stake
The sound bites booming from Washington, D.C., about spending and taxes have a familiar ring in Sacramento, especially for state Treasurer Bill Lockyer. A rather scary ring.
“They’re playing chicken to see who will be the first one to flinch,” he says.
“That has happened a lot in California. Mostly what we have learned is that when you play chicken, no one wants to be the first to chicken out. And it makes it harder to get a deal done.”
Lockyer is the savvy old pro of Sacramento politics, having served continuously in state elective office for nearly 38 years, dating back to Ronald Reagan’s governorship.
He has seen and done it — 25 years in the Legislature, winding up as Senate leader, then California attorney general and treasurer.
Odds are Lockyer, 70, will run for state controller in 2014. That year he’ll be termed out as treasurer and so will fellow Democrat John Chiang as controller.
But right now, Lockyer’s antsy about the potential repercussions in California if President Obama and the politically divided Congress fail to compromise on legislation to raise the nation’s debt ceiling and avoid a federal default.
There’s talk they may merely kick the can down the road, punting the difficult deficit-lowering decisions and emulating Sacramento’s past sins.
But if there’s gridlock and the feds do default, Lockyer says, there’ll be “a ripple effect” throughout California among governments whose bond ratings are tied to Treasury notes. They’d have to pay higher interest rates while fighting deficit spending.
That would strike mostly cities and counties, but some state bonds also could be downgraded. As it is, the treasurer says, California’s credit “is worse than Mexico’s.”
Unable to borrow and short on cash, the U.S. government could stiff all the states for its share of health, welfare, education and highway costs.
Sacramento knows all about stiffing. During summer budget squabbles, it has routinely stiffed local governments, schools, Medi-Cal providers and businesses that sell to the state.
“California often leads the way — good and bad,” Lockyer says.
The Sacramento stiffing stopped only this summer when a new law allowed the Legislature to pass an on-time budget with a simple majority vote rather than requiring two-thirds.
Preparing for federal chaos, Lockyer is planning to seek a bridge loan of up to $5 billion from banks in anticipation of the president and Congress failing to meet their Aug. 2 deadline for raising the debt ceiling.
He’s hearing a lot of rhetoric that he recognizes — a lot of huffing and puffing and bravado.
Politicians in Sacramento and Washington — mainly Republicans — have a similar problem, the Democratic treasurer asserts: “They have an inability to declare victory when they’ve won.”
Washington Republicans could have struck a deal forcing sharp spending cuts if they had been willing to vote for future tax hikes of a lesser magnitude, he says.
In Sacramento, if the GOP this year had just allowed Gov. Jerry Brown to place a tax measure on the ballot, they could have achieved long-sought reforms in public pensions, state spending and business regulation.
“They gave all that up because of their inability to close a deal and their not realizing what a great opportunity they had,” Lockyer says. “There’s too much religiosity in their tax views or too much influence by hot talk radio….
“One thing I learned about negotiations — and I learned this from [former Assembly Speaker] Willie Brown and [former Gov.] Pete Wilson — whenever you get into a philosophical argument, [the talks] never go anywhere. When you reduce it to practical things — ‘I’ve got this guy who won’t vote for the budget unless we change something in one area’ — then you get results.
“When you get into the philosophical, both sides get rigid.”
In Washington, freshman “tea party” Republicans won’t vote for tax hikes. House Democratic Leader Nancy Pelosi balks at entitlement cuts.
“The tea party people in Washington — the Michele Bachmann types,” Lockyer continues, “say, ‘We don’t care how many cuts there are. We’re not going to vote for any borrowing.’
“There’s a lot of similar sentiment in Sacramento. ‘OK, you want to run off the cliff? Good idea. Let’s destroy government.’ There’s a lot of hypocrisy in both places.
“Our local version is, ‘I’m not voting for any tax increase. But I’m not voting for any of the cuts either.’”
Sacramento Republicans left it up to Democrats to do the slashing last month. By some illogic, they thought that would excuse them from any blame.
In the past, the blunt Lockyer has strongly criticized Sacramento budget-making. “Gives gimmicks a bad name,” he said of the 2008 spending plan. “I’d have to call it banana republic financing.”
Lockyer proclaimed the Democrats’ mid-June version of a budget — one vetoed by the governor — so gimmicky that it would likely turn off Wall Street from buying California’s short-term notes.
But he praises the final product.
“If you’re a recipient of government services — on Medi-Cal, SSI — it’s a hard hit,” he says. “There’s a lot of pain. But as the banker for the state who wants an old-fashioned balanced budget, I think they really did a good job.”
The treasurer wrote Brown and legislative leaders: “This budget, for the first time in recent years, honestly and clearly balances revenues and spending [and] makes substantial progress toward eliminating California’s large and chronic structural deficit … a very important step forward in restoring California state government to fiscal good health.”
Now Lockyer watches the chicken-playing in Washington and fears California may be shoved a step backward.
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