Better to tax than to borrow, gov. says

SACRAMENTO —  It can’t be done, Gov. Arnold Schwarzenegger was insisting, staring at me over a table in his office. You can’t have a responsible, honest state budget without a tax increase.

Not this year.

The governor wasn’t trying to convince me. I’ve been singing that tune every budget since he took office. This was a new song for him.

I’d asked the governor how he could explain his new advocacy of a sales tax increase to Republican voters who had supported his reelection two years ago after he promised not to raise taxes. Many still believe the state can make ends meet merely by cutting spending.

“You can’t cut the whole $15 billion,” Schwarzenegger said, referring to the gaping hole in a $102-billion general fund.

“You’d have to severely cut into education, which I don’t think is the right thing. You would severely cut into healthcare, which is not the right thing to do. You would severely have to cut into prisons, and we can’t do that.”

A good Republican trade-off for a one-cent-on-the-dollar sales tax increase for three years, he asserted, would be a long-term budget fix: A constitutional amendment requiring the state to transfer 3% of its annual revenue to a rainy-day fund until it grew to 12.5% of the general fund. The kitty could be tapped only in a fiscal emergency.

Also, if the state were heading into a hole in midyear, the governor could unilaterally pare spending up to 7% on state operations and deny cost-of-living adjustments.

“Fix the budget system once and for all so this will never, ever happen again,” he asserted. “Do a compromise where you make the Democrats do something they never would have done and make we Republicans do something we normally would never do.”

He added: “I just think the wisest thing to do is to go to the people and say, ‘Look, I know I’ve said no taxes. But now we are in a situation where we have to do that temporarily . . . I need your help.’ ”

But he’s getting few takers in the Legislature.

The budget proposal Schwarzenegger outlined last week also calls for $2 billion in additional program cuts, including $1.1 billion in education. He’d raid $567 million in public transit money. And he’d steal federal cost-of-living adjustments for the aged, blind and disabled. Democrats object to all that.

They’re also not wild about his budget reforms. “We don’t want to exchange multi-year spending cuts for a one-year budget,” says Assembly Budget Committee Chairman John Laird (D-Santa Cruz).

So you’d think this would be a good bargain for Republicans: a temporary tax increase in return for long-term spending restraint. But they don’t think the restraint is strong enough -- not strong enough to overcome their hatred and fear of taxes. Practically all have signed pledges not to vote for a tax increase.

“We Republicans have all been united in our belief that the state has a spending and not a revenue problem,” declared Senate GOP Leader Dave Cogdill of Modesto, echoing what also used to be Schwarzenegger’s mantra. “It is so discouraging to see the governor walk away from these core principles.”

That comment fired up Schwarzenegger.

“I have people’s principles,” he told me. “I want to be a public servant, not a party servant. I mean, I’m a supporter of my party and I’m a Republican. But we’re supposed to serve the people, not the party.”

He’s frustrated at the Republicans’ unwillingness to bend and deal.

“Look,” he said, “I hate tax increases. But I’m willing to go beyond my beliefs and ideology to make a compromise. It’s the only way we can solve this budget problem.”

Last week, GOP leaders were trying to devise a no-tax budget that relied on widespread borrowing -- dipping into state money jars, including local government and public transportation accounts. The money would have to be repaid at steep interest rates. Assembly Speaker Karen Bass (D-Los Angeles) even seemed willing because more borrowing would mean less cutting.

But borrowing is partly what got Sacramento in trouble. One of Schwarzenegger’s first acts as governor, in 2004, was to lead the charge for voter approval of $15 billion in bonds to cover everyday state expenses. He and the Legislature also dipped into various state kitties that they’re still replenishing.

Enough’s enough, Schwarzenegger now says.

“When I stepped into this mess we had to borrow,” he contended. “But that hasn’t even been paid off. You can’t have a loan out that you haven’t paid off -- can’t even find a way to pay it off -- and you say, ‘Let’s borrow more.’ That is terrible business. That’s what gets people into trouble with their credit cards. All of a sudden they’re in bankruptcy.

“Just bite the bullet and get the revenue from the temporary sales tax increase.”

In fact, Schwarzenegger vowed to veto any bill that relied heavily on borrowing -- any gimmicky “get-out-of-town” budget. He’d call the Legislature back into special session to do it again.

“I don’t want to go and sign a budget that borrows any more money,” he said. “I am very adamant about not creating more debt.”

Sunday was supposed to have been the drop-dead day for passing a reform measure in time for the November ballot. Schwarzenegger said he might call a special election next year.

“No one here should think that because they go past the deadline that now they’ve pulled a nice trick,” he cautioned. “There will be no budget signed without a good budget reform.”

The governor chided Republicans for not producing their own budget. He has. Democrats have.

“Republicans talk about the borrowing scenario and about the cuts,” he said. “I’d like to see their budget. Why haven’t we seen any numbers? Wouldn’t it be wonderful? ‘Here are the cuts in education and in healthcare and in prisons and law enforcement.’ ”

Schwarzenegger expects the fight to drag out a lot longer, even if the budget already is 56 days late. The fiscal year began July 1.

“Lock the building and don’t let anyone leave until there’s a budget,” he declared.

The governor has an anti-borrowing ally in Senate leader Don Perata (D-Oakland). Perata has vowed to spend Thanksgiving in the Capitol negotiating before he’ll surrender to more borrowing.

“Oh, we definitely will be here on Thanksgiving,” Schwarzenegger said. “That’s for sure.”

Surely he jests. Surely legislators will see the governor’s offer as a realistic basis for compromise.

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george.skelton@latimes.com