Governor’s pay cuts hurt 200,000 innocent bystanders

During the past two decades, California has had a budget in place before the start of a new fiscal year four times. That dismal track record is a stark illustration of the State's broken budget process.

Obtaining approval from two-thirds of a politically-fractured Legislature is difficult in any year. But during times of economic distress, it becomes even more challenging, and costly.

California's economy is showing only slight growth following a severe downturn in the housing market. The State has lost more than 86,000 jobs in the construction sector alone, credit markets have tightened as banks nationally have written off $350 billion in losses, oil prices have reached dizzying heights, and consumer confidence has hit a 16-year low.

The State budget and cash position are bearing the brunt of the economic turmoil. Our deficit is $15.2 billion, and we have gone an entire month without a budget, stopping the flow of critical payments to schools, healthcare providers, and small businesses that provide services and products to the State.

There is no need to pull another 200,000 innocent bystanders into this budget morass, and I will refuse to slash the salaries of the dedicated civil servants who keep our state running.

Gov. Schwarzenegger's misguided and poorly-devised proposal to cut the pay of rank-and-file state workers to the federal minimum wage of $6.55 will do nothing meaningful to improve our cash situation. We have sufficient cash to meet the State's obligations through the end of September. If there is no budget in place by mid-August, the State will have to engage in external borrowing to meet its cash demands. But deferring paying full salaries to state workers' will have no impact on what kind of external borrowing we pursue.

The governor's proposal may plunge the State into an even more difficult fiscal situation. Aside from the costs of litigating my authority to pay state workers their full wages, his move would harm thousands of families who already are struggling with mortgages and higher gas, food and energy costs. The loss of their spending dollars will increase the loss in consumer confidence, and further deteriorate California's fragile economy.

It would be wiser for the Governor to show leadership in the budget battle. As legislators continue to grapple with how to raise revenues and cut spending, it is important that they gain the public's trust with a solid solution and not another plan to pave over the problems until next year.

Taxpayers must be confident that for every dollar in taxes they pay, they get at least a dollar's worth of measurable public services. Taxpayers want to see roads paved to ease congestion, school facilities repaired, and flood protection bolstered. They also are willing to dig a little deeper into their pockets if they believe it will bring long-term results. Even after being battered by a poor economy, Californians will pay a little more if they are confident their efforts will help the State fix its long-term structural budget deficit once and for all.

Wall Street hammers us for our inability to make mid-year spending adjustments, which prevents us from correcting shortfalls in the budget and from bridging financial gaps before they turn into an abyss. We also earn low marks for sugar-coating and inflating revenue projections and by touting new revenue-producing initiatives that likely will not materialize. Our budgets do not plan for our future infrastructure and capital needs, and we do not have a budget reserve policy that extends beyond whatever budget is cobbled together.

Lawmakers should put sunsets on new taxes and tax credits so they can periodically review tax policies and ensure they are providing the benefits intended. Those policies that work should continue; those that do not should expire. The State should have the ability to make mid-year adjustments to allow us to tweak spending when the economy goes south. We should axe the super-majority vote needed to approve the State budget as well as new taxes. And we must create a strong rainy day fund to ensure a sufficient reserve is available to help us through economic and natural disasters.

Californians are willing to suffer during a budget stalemate – as long as the end result is not simply another get-out-of-town budget. If legislators are to spend another hot summer in Sacramento, finding ways to increase our revenues, check our spending, and enact a balanced budget, they should take the opportunity to actually fix California's structural budget deficit.

That alone would put California on the right track to improving our image not only on Wall Street, but also on Main Street.