Budget Reform

The economic Paul Romer said, "A crisis is a terrible thing to waste." And Gov. Schwarzenegger, after a bit of drift, has taken that wisdom to heart, focusing again on his budget reform proposal, which includes a revenue stabilization or rainy day fund.

He told the AP in an interview Tuesday: "I will not sign a budget that doesn't have budget reform in it, because otherwise I could not keep the promise to the people of California. I told them in 2003 that we are going to become more fiscally responsible and that we are going to go and to start living within our means."

He's right about what he promised, and about his need to keep his promise. And it's good that he's demanding budget reform in this process. Whether or not all elements of his plan make sense, he's the only one with a real plan. I, for one, wish he had dreamed bigger and looked at a total, top-to-bottom reform of the state's tax system, and then matched that to a rainy day fund. But it's good that he's pushing for some kind of reform at a time of crisis. This is his last, best chance to get anything done.

Voters need to pay close attention to news of the budget. If there is a reform that includes changes to the state constitution, they'll have to vote to ratify them in November.

Former speaker Fabian Nunez, a Democrat, shows up on today's Sacramento Bee editorial page to make the argument for Schwarzenegger's plan to borrow/securitize lottery revenues in order to reduce the deficit and fund a new rainy day fund. the lottery plan would require voter approval. Nunez continues to oppose the spending limitations in the governor's budget reform proposal. 

The former speaker's take may explain the governor's recent behavior. He seems detached from the budget, leaving any talks to legislative players. He has sounded very confident publicly that lawmakers ultimately will have to adopt something like his plan. He speaks as a man who has looked at all the other options, and found none.

People have been asking your blogger the following question: what's the difference between working at the LA Times (I quit earlier this year) and being a fellow at New America? The answer is easy: technology. Because New America is a think tank, I have access to the Mind Reading Machine (MRM), a little-known device. This weekend, I got to use the machine for the first time, and I decided to point it at the brain of Gov. Arnold Schwarzenegger. Last week was a big one for him and for California: a revised budget proposal that was widely panned, his renewed push to get his budget reform plan on the November ballot, and a state Supreme Court ruling permitting gay couples to marry in the state.

Here's what the Mind Reading Machine spit up:

"You know when something good happens at the wrong time? I can't admit this to anyone, but that's how I think about this gay marriage ruling.

I've got no problem with gay marriage, of course, but up til now I've done a great job of avoiding the issue politically. Many Republican voters didn't know my private views before the Supreme Court did its thing Thursday and I had to issue a statement saying I would uphold the court's decision. I had everyone confused because  I came down hard on that big forehead [MRM EDITOR'S NOTE: forehead is an all-purpose insult favored by the governor], the mayor of San Francisco, for marrying those folks without any legal authority. If you look at what I said, I condemned him not for the marriages but for making up the law as he went along.

Your blogger had to spend yesterday afternoon and evening on some personal business. He woke up this morning to find himself almost alone among politicians and commentators in arguing that Gov. Schwarzenegger's May revise sets the stage for a breakneck push for budget reform. (Whether that reform is a good idea is another story. His proposal's focus on the spending side makes it incomplete).

But commentators have dismissed much of what he's proposed as gimmicks or borrowing. At the Sacramento Bee, Dan Weintraub writes that Schwarzenegger has surrendered in his attempts to balance the budget. His full funding of the Prop 98 education guarantee -- an essential strategic move if he wants to maintain enough popularity to convince voters to adopt any kind of budget reform -- is largely dismissed, and the resulting proposed cuts to health and human services programs are emphasized in responses from legislators (via Sac Bee). Others argue that the budget is not fiscally responsible -- true, but it's politically the right approach if you believe, as the governor appears to believe, that the only way for California to get a handle on its persistent budget problems is major structural reform of the process itself.

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.

This piece in the Contra Costa Times asks whether there's "donor fatigue" as Gov. Schwarzenegger raises money for his redistricting initiative and perhaps, some sort of budget reform ballot measure (or measures) in November. It's a fair question. The problem may not be fatigue but donors' clear-eyed assessment of the political chances of redistricting and budget reform. Redistricting has a perfect record at the ballot over the last 15 years -- it's lost every time -- and budget reform proposals of all stripes (notably Prop. 56 in 2004--backed by Democrats and unions -- and Prop. 76 -- backed by Schwarzenegger and Republicans --  in 2005) have gone down to defeat. What is the point of spending good money on reform proposals that will go down to defeat, no matter their merits?

In California, Thomas Elias may be the most important voice you've never heard of. Elias, an independent journalist whose column in appears mostly in smaller papers over the state, was arguably the first person to circulate the notion of a recall of then Gov. Gray Davis just after his re-election in 2002. (Other folks took it and ran from there).

Elias reports and thinks deeply, and gets into the guts of the issue. Now, almost alone, he offers a column not about the politics of Gov. Schwarzeneggger and his reform efforts (the preoccupation of Sacramento) but about the substance of the governor's proposals. Today, Elias looks at budget reform, and he raises important points. His main problem is that Schwarzenegger's budget plans, which have only been loosely outlined, would give far too much power to the governor's office. Governors could make mid-year cuts, set aside money for reserves and in some cases, suspend laws all by themselves. Elias sees this as dictatorship. Having sat through legislative budget hearings, your blogger wonders if a little bit of dictatorship in making budget adjustments might not be such a bad idea. Whatever the case, Elias deserves credit for trying to spark a debate on the nuts and bolts of this. California voters, after all, may have vote on a "reform" plan of some kind this November--six months away.

Last month, I wrote in the Los Angeles Times about how Gov. Schwarzenegger's pursuit of education cuts as part of his budget proposal was undermining his efforts to achieve redistricting and budget reforms. A new poll from the Public Policy Institute of California offers more evidence. His stance on education is so unpopular -- only a quarter of Californians approve of his handling of education -- that it's dragging down his overall popularity (to 41 percent in the poll). Schwarzenegger is leading the way in offering reforms, but if he doesn't drop the education cuts -- and he has the opportunity to do just that with his revised budget proposal later this month, his low popularity will poison those reform ideas and end his last chance to make major changes in how the state governs itself.

Friend of the blog John Myers of KQED (the Northern California NPR affiliate) has an excellent blog item reporting about the question of exactly when and how Gov. Schwarzenegger might put in writing the budget reform proposal he is talking so much about. Given the complexities of any budget reform, Californians will need as much time as possible to figure it out if they are to vote on a reform measure this fall.