California’s costly budget

It’s not over. The 2008-09 state budget is so late, and so lame, that it won’t really be finalized until next year -- if then. Its passage Friday and expected signature by the governor early next week provide some relief to the clinics that were about to close for lack of state reimbursements, and for employees wondering how to get by on emergency pay lower than the state minimum wage. But the reprieve is simply a brief intermission. Work begins immediately on the budget for the fiscal year beginning July 1, 2009, and nothing in the spending plan passed this week will result in a more timely or responsible budget next year.

In fact, the 2009-10 plan will rest less on a solid foundation than on crossed fingers -- that the economy will recover more quickly than even the most hopeful forecasters believe, that voters will accept a plan to securitize the state lottery, and that the lottery move will produce the very optimistic figures that the governor’s finance staff is banking on.

Two key differences separate the end-of-the-week budget from the one Gov. Arnold Schwarzenegger threatened to veto a few days earlier. One is undoubtedly a step forward -- or, rather, a reversal of a step backward. The budget is no longer balanced on borrowing from taxpayers in the form of early withholding. Instead, money will (the budgeteers hope) come from increased penalties on corporations that underpay their taxes. There’s a qualitative difference between taking money from Californians who did nothing wrong and penalizing anyone -- in this case, corporations -- for failing to pay what they owe.

‘Rainy day’ reserve

The second difference is Schwarzenegger’s coup -- a set of changes he calls “budget reform.” For the people of California, it’s a mixed bag. Three percent of the budget will automatically be deposited into a “rainy day” fund and can’t be taken out except when revenues fall below the projected spending level. Though the governor failed to impose the spending caps he floated earlier this year, the Legislature’s ability to respond to some of the state’s deepest problems will be compromised by the rainy day fund. It’s hard, though, to stand up for protecting lawmakers’ discretion, given their poor performance on the budget this year.

How poor? They were supposed to complete the budget by June 15. They set a record, missing the mark by a full fiscal quarter, and in the process cost the state millions of dollars by, for example, blowing the chance to get parts of the budget that need voter approval onto the Nov. 4 presidential ballot and forcing a special election next year. Tax revenue was also lost from businesses that slowed down because they depend on state contracts. Perhaps worse than the lost money is the lost faith of citizens in their representatives’ ability to manage the state.

Among the other losers, count Schwarzenegger’s vaunted post-partisanship. He began his second term with an appeal to Democrats and his own Republicans to set aside their partisan differences to accomplish great things for the state. But in doing so, he alienated GOP lawmakers and undermined his power to wrangle votes from his party for a compromise budget. Post-partisanship remains an intriguing goal, but this year -- like last year -- it backfired on the governor.

Democrats too lost big. They are the majority party in the Assembly and the Senate, and they can pass bills without so much as a by-your-leave from Republicans. But that counts for nothing at budget time, when they need GOP votes to help them muster two-thirds of each house.

Democrats believed they could outmaneuver their rivals across the aisle by emphasizing education and asking Republican voters to pressure their representatives to do something -- like agree to tax increases -- to save funding for public schools. It didn’t work. New Assembly Speaker Karen Bass (D-Los Angeles) did fend off deeper cuts to education, transportation, foster care and other programs, but her inability to move Republicans from their no-taxes, no-way stance weakens her as she goes into the coming budget year. Outgoing Senate President Pro Tem Don Perata (D-Oakland), for all his experience in Sacramento, fared no better.

In California’s upside-down budget world, where majority power and willingness to cross party lines are signs of feebleness, the winners continue to be the state’s Republican lawmakers. They cling to just over a third of the Assembly and the Senate, yet they are able to drive the budget by their willingness to say no. Every day that the state is unable to pay its bills, Republican lawmakers win short-term gains in reducing the power of government. In the long term, though, they damage their own fleeting reputations as guardians of fiscal prudence.

In the end, of course, the biggest losers are Californians, who once boasted the best-run state government in the nation. Now they are caught in indecision about which way to go -- cut back on their demands for state services or ante up with new taxes for high-quality government. Their punishment comes in budget years like this one and ballot measures that ask them to tweak here, reform there, and hope everything works out in the end. It is an endless loop, and it will bring us a 2009 special election, in March or June, to manage problems that Sacramento could not deal with in this budget. See you next year.