Arnold Is "All In" On Budget Reform

This is also posted at Fox and Hounds Daily, a new news and commentary site focusing on California and business.

There is no longer any doubt about one thing in California politics: Gov. Schwarzenegger is willing to die on the cross of budget reform.

My conversations with people inside and outside the administration, and a review of news leaks in advance of the governor's revised budget proposal this afternoon, make it clear that he is doubling down on budget reform. For a man with a reputation for twisting with political winds, he is doing the opposite here, trying again to pursue reforms as he did in 2004 and 2005. He is so determined to get voters to adopt his budget reform (a spending-side proposal based on a rainy day fund and more power for governors to make mid-year cuts) that he is risking what's left of his governorship.

One piece of this approach is undeniable smart, As the Sacramento Bee reports, he's pulled back from his proposal to include education in spending cuts and is now proposing to meet the Prop 98 minimum on education. His cuts were fiscally responsible -- but they were politically poisonous to his project of budget reform. By dropping the unpopular cuts, he is making a strategic move that signals his top priority--budget reform or bust.

The "bust" in this case is the promise-breaking sales tax increase he's offering as a back-up to his budget reform plans. One note here: the LA Times today reports that if the governor is going to ask voters to approve a privatization of the lottery. If they don't, the back-up plan will be a one-cent sales tax increase. Two trusted sources tell me, however, that Schwarzenegger sees more than just the lottery going on the ballot; he wants his budget reform proposal there, too. The one-cent sales tax will be pitched as the back-up to the whole package.

The risk here is that by putting things on the ballot, he could effectively extend a difficult, contentious, popularity-sapping budget season all the way into November. His popularity is already falling; if things don't go well, he could be in George W. Bush - Richard Nixon territory by fall. And if his reform loses and he gets a tax, he'll likely lose what's left of his Republican base. But he's going forward anyway. With this approach, Schwarzenegger is giving California his most straightforward assessment: he think there's literally nothing more important (even his own political career) than changing the way the state manages its budget. It's classic Arnold: high-risk, big, and structure in a way to produce a lot of attention. His specific policy may be right or wrong, but either way, it will make a hell of a movie. Attention Californians: Your governor is jumping off a cliff without a parachute.