October 28, 2005

Calif. measure would boost Schwarzenegger budget power

By Jim Christie

SAN FRANCISCO (Reuters) - California, which alone
constitutes the world's fifth- or six-largest economy, has a
serious financial problem: it consistently spends more money
than it takes in, leaving it billions of dollars in debt.

California Gov. Arnold Schwarzenegger, who came to office
vowing fundamental reform of state governance, says he has a
solution. He wants a ballot measure to restrain expenditure and
give him discretion to cut spending.

If voters approve Proposition 76 in 10 days, it could have
far-reaching consequences for the state. It would set
California's finances on the conservative course that
Schwarzenegger, a Republican, wants and that the state's
Democratic-controlled legislature opposes.

"It's a way to keep taxes down and a way to make sure there
won't be new taxes," said San Jose State University political
scientist Larry Gerston. "If it passes, what it would really do
is make the legislature second banana in the budget process."

Proposition 76 is one of a handful of measures on the
ballot for the November 8 special election that Schwarzenegger
called to put his policy priorities to voters after failing to
convince lawmakers to act.

He says the measure would force the state to live within
its means by limiting spending increases to an average of
growth in the three prior years' revenues and by using excess
revenues for a reserve fund to pay off state bonds and for road
and school projects.

California faces a budget shortfall of $6 billion for the
next fiscal year.

If lawmakers do not pass a budget, the measure would freeze
spending at prior-year levels. If revenues fall below forecast,
the governor could unilaterally cut spending, including
politically sensitive school spending, at mid-year.

"Proposition 76 will fix Sacramento's broken system of
deficits and out-of-control tax increases," Schwarzenegger


A spending limit would smooth out feast-or-famine budget
cycles, which have led to persistent budget shortfalls and a
weak state credit rating, said Steven Frates of the Rose
Institute of State and Local Government. "It provides some
incentive for the legislature to be reasonably responsible.

"The thing driving it is the reaction to huge spending in
the tech days," Frates added, referring to one of the major
causes of five consecutive years of state budget deficits.

Democrats say that Schwarzenegger, who has ruled out
raising taxes while relying on a rebounding economy and debt to
stabilize the state's finances, would use the measure to
shortchange vital programs to balance the state budget.

"It's a huge power grab," said Steve Maviglio, a Democratic
activist. "It sets in motion robo-cuts, automatic cuts across
the board, that would take a meat ax to state government."

Arrayed against the measure are the state's large and
powerful teachers, state employees and prison guards unions,
which Schwarzenegger has enraged by endorsing a separate ballot
measure that would require public employee unions to obtain
permission from members to use dues for political purposes.

The unions say the ambitious spending cap measure endangers
state funding for schools and emergency and health care
services, ensuring a fierce campaign until the election.

Polls show the measure has weak support in an election many
analysts view as a referendum on Schwarzenegger ahead of his
re-election effort next year.

"He has really put himself in a very difficult situation.
This is make or break for him," said Samuel Popkin, a political
scientist at the University of California, San Diego.