Schwarzenegger pledge at heart of veto threat
Judy LinThe state's political dysfunction reached a new low this week with Gov. Arnold Schwarzenegger vowing the first veto of a California budget in modern history. The spat goes beyond the numbers; it's about what may be the governor's last chance to hammer out a fiscal legacy.
Schwarzenegger, who will be termed out in two years, is trying to make good on his central campaign pledge to bring order to the state's chaotic fiscal house — even if it means extending a budget impasse that already has lasted two and a half months.
He rode the recall wave from Hollywood to Sacramento five years ago on a promise to "blow up the boxes" of state government, but his approval ratings have plummeted since then. This year marked his third attempt to deliver fiscal reform to a dysfunctional political system, as he attempted to persuade lawmakers to include long-term fixes in their annual budget.
In the governor's eyes, the spending bill they sent to his desk Wednesday failed to do that, and he vowed to reject it. His veto is expected to come Friday.
"You know, when the people of California sent me to Sacramento, I promised them I would fight for them and I would fight to change the broken system and fix the roller coaster budget system that promotes all this big spending when our economy does well and then we don't have enough money when our economy is down," he said Tuesday during a news conference announcing his veto threat.
The Legislature's budget relied on accounting gimmicks — such as accelerating the withdrawal of state income tax from workers' paychecks — that could lead to an even larger deficit next year.
But another sticking point is the strengthening of the state's rainy-day fund; lawmakers made changes but rejected Schwarzenegger's demand that they restrict when and how the Legislature can tap into the cash.
"Legislators had the chance to fix our past mistakes and put us on the right course, but they refused to do so," Schwarzenegger said.
Lawmakers met with the governor Wednesday and reported no progress. They planned to resume talks Thursday.
Summer fights over taxes and spending have become commonplace in California, shutting off state money to medical clinics, school programs and state vendors. This summer's budget impasse was the longest ever, running 78 days past the start of the fiscal year.
A veto would mean the state will continue to withhold billions in payments to vendors, schools, hospitals and certain state employees since the start of the fiscal year July 1. Some legislative leaders have said they are prepared to override the governor's veto as a way to free up money and would seek to address the fiscal crisis later.
"Frankly, a veto simply puts the governor in the starring role in California's financial disaster," Senate Democratic Leader Don Perata said in a statement Tuesday.
The state is facing a $15.2 billion deficit in its $104.3 billion general fund budget.
Experts say Schwarzenegger is making a good-faith attempt to fix a budget system nearly everyone agrees is broken. But they also note that his main reform proposal — creating a robust rainy-day fund to be drawn upon in hard times — won't bring spending in balance with revenues in the short term. Under his plan, the state wouldn't begin putting money into that fund until 2010.
"It only kicks in once you have abundant revenues in the fat years," said Jack Pitney, a political science professor at Claremont McKenna College in Southern California. "And it looks like we're going to be in for some lean years."
Among the many problems with state's budget system is its boom-and-bust revenue cycle, in which cash flows can fluctuate wildly from year to year because a large portion of income is from capital gains taxes.
"Some years we're rolling in dough, and other years we're rolling in mud," Pitney said.
This year, taxes are down across the board because of the housing bust, which has rippled through California's economy.
Democrats and Republicans have strong philosophical differences on how to balance the budget, with Democrats preferring a combination of cuts and tax increases and Republicans favoring large spending cuts and some borrowing.
While Republicans are the minority, they are able to exert influence during each year's budget negotiations because of what some see as the state's biggest obstacle to on-time budgets: Spending plans must be approved by two-thirds of the Legislature. Arkansas and Rhode Island are the only other states with such a threshold.
The compromise plan passed Tuesday satisfied no one, relying primarily on accelerated state income tax payments from working Californians and those who pay estimated taxes each quarter, such as corporations and wealthy individuals. It also closed several tax loopholes.
Schwarzenegger said the Legislature's budget would use "taxpayers as an ATM machine" and require a major tax increase or massive cuts to education next year. Even lawmakers who voted for the plan agreed that it merely punted the toughest fiscal decisions.
"I think the governor knows we have to have a tax increase," Perata said Wednesday. "We can't get a tax increase. I don't know how we're going to. I mean, the Republicans are pretty hardened now. This is really a fight between the governor and the Republicans. And as far as I'm concerned, we've done the best we could."
Schwarzenegger has lashed out at members of his own party, chastising their self-appointed status as fiscal conservatives while pushing through a budget filled with gimmicks and failing to meet his standard for long-term reform.
With time running out on his tenure, Schwarzenegger views this as perhaps a last chance to fulfill his budget-reform pledge.
With his veto threat, he has indicated he's willing to keep fighting, even as his approval rating has plunged to 38 percent. He has said he will veto hundreds of bills if lawmakers override his budget decision.
"This is the year to fix it," the governor said Tuesday. "I do not want to kick this problem down to next year."