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Calif. Budget Crisis Has a Familiar Ring

By Karl Vick
Washington Post Staff Writer
Wednesday, December 24, 2008

LOS ANGELES, Dec. 23 -- While Republican Gov. Arnold Schwarzenegger and the Democrats who control California's legislature tussle over details of a bill aimed at bridging the first $18 billion of the state's $40 billion budget shortfall, the deadlock is halting freeway repairs and bringing warnings of layoffs and unpaid furloughs for state workers as soon as February.

The budget crisis is the worst in the state's history and is a product of a nationwide economic downturn of exceptional severity coupled with the wholly routine functioning of the Golden State's dysfunctional budget apparatus. It comes two months after the last budget crisis, which produced a spending plan a record three months after the deadline set by the state constitution.

"It's just fundamentally dysfunctional," said Leon Panetta, the former Democratic congressman and White House chief of staff who founded California Forward, a think tank formed to bring the state's machinery of governance into line with its proven leadership in energy, technology, higher education, environment and other realms.

The emergency of the moment has a familiar air. As they did during the summer budget deadlock, Schwarzenegger and lawmakers are holding dueling news conferences blaming each other for the impasse over how best to dig out of the budgetary hole, which leaves the state $40 billion short over the next 18 months. And once again, the Democrats have passed a bill very close to what the celebrity governor has deemed acceptable.

The new measure would cut spending on education, health care and prisons while disguising an increase in the gasoline tax by dubbing it a fee, thus skirting a constitutional requirement for a two-thirds vote on tax increases.

Schwarzenegger signaled that he was fine with the thrust of the bill but thrashed lawmakers for leaving out elements he had suggested -- such as a provision aimed at stimulating the economy by streamlining spending on construction projects -- "as we free-fall into a fiscal Armageddon," the governor said.

"He clearly is more comfortable with fantasy than with governing," Majority Leader Alberto Torrico shot back. "He must have used every bit of his limited acting skills to look people in the eye and blame the legislature for inaction."

Analysts have accused Schwarzenegger of spending more time in the limelight than in the backroom negotiating with a Democratic majority that until recently he routinely made his partner.

"He needs them, but he sees himself as still larger than life and above the fray, and that has been part of the problem," said Jaime A. Regalado, executive director of the Edmund G. "Pat" Brown Institute for Public Affairs at California State University at Los Angeles.

Yet students of California politics say both sides are prisoners of a system that constrains decision-makers while encouraging short-term conflict. Every state is required to balance its budget, but California is one of three that require a two-thirds majority for any tax increase.

If the parties got along, this would not be an insurmountable challenge. But state law encourages political polarization by allowing lawmakers to draw their own districts, which results in few competitive races except in primaries, in which strict adherence to partisan ideology is most likely to be rewarded. In the budget negotiations, for instance, GOP lawmakers are sidelined by their vow as a group never to raise taxes.

Last month, voters cast ballots to change the way districts are drawn by passing an initiative that would shift the power to a panel of experts. But in the larger scheme, California's ballot initiatives tend more to complicate governance.

Exhibit A remains Proposition 13. Since voters passed it 30 years ago, property taxes have not been allowed to rise more than 2 percent a year. That forced state budget planners to rely more and more on income tax, which rises and falls with economic fortunes everywhere but especially in California. Because the state includes high-income economic hot zones such as Silicon Valley, its coffers also suffer when year-end bonuses and capital gains come in smaller than expected.

"California's revenues are extra sensitive to the health of the economy," said Jed Kolko, associate director of research at the Public Policy Institute of California.

Analysts say elected officials do themselves no favors by budgeting year-to-year, rather than fixing longer-term goals that would guide planning for a spending plan that, for all the drama, has been essentially flat for three years. But with legislative leaders limited by law to two terms, politicians naturally foreshorten their horizons, with an eye to whatever their next office may be, Panetta said.

"You have these long-term reasons that make the budget process so fragile even in the best of times," Kolko said. "And you add a recession to that and you see what you have."

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