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Opinion A budget crisis that Arnold could have prevented, but didn’t

Every year of Arnold Schwarzenegger’s governorship has seen more bad budget news, each worse than the one before. Now we’ve got a new $19 billion hole to fix.

The problem could have been solved long ago. But Schwarzenegger has refused, for selfish and political reasons, to take simple actions that would have averted these annual disasters and the long-range harm to California that has resulted.  

The single, simplest, most effective solution would have been allowing the Vehicle License Fee, or VLF, to simply revert to historical levels when shrinking tax revenues were plunging the budget into the red as he took office. But Arnold’s VLF stance got him elected, and earned him generous financial help from wealthy special interests. Sadly, it has also caused great long-term harm to California and left his legacy in shambles.

Until recently, the VLF had remained unchanged since the 1930s. The current debate over the VLF dates back to 1998, when Republican Gov. Pete Wilson crafted a plan to temporarily reduce the fees in years when the state was flush, and give car owners a small, temporary windfall. It had been 2 percent of a car’s market value, depreciated for each year it had been on the road. So if you bought a car for $20,000 and owned it five years, its depreciated value would be $10,000, and you’d pay 2 percent of that, or $200. Wilson’s plan temporarily lowered the fees by about two-thirds, so it saved a typical car owner a hundred bucks or so. But it also had a “trigger” that would restore the fee to its historic 2-percent level when revenues plunged again, to protect the state from future deficits. Republicans, when Wilson proposed that plan, agreed to it.

During Gray Davis’ first term, state revenues were stronger than expected and the lower VLF remained in effect. But by 2003, revenues had fallen, and Davis announced that – per the Wilson deal – the “trigger” would be pulled, and VLF fees would return to 2 percent of depreciated value.

But with a Democratic governor in office, Republicans turned against the deal, and disingenuously blamed Davis for a tax increase that, in fact, would merely restore the fees to Wilson’s agreed-upon level.

Action movie hero Schwarzenegger played it for the highest drama. In his ads, referring to the “Gray Davis car tax,” he bellowed: “It is outrageous! I will repeal it!”

It worked. Davis was recalled, Arnold was elected, and California has paid the price ever since. By refusing to restore the VLF, Schwarzenegger increased state spending, and plunged the state deeper into debt, with no public services to show for it. Because VLF revenues go to local governments, to avoid criticism from local officials, Arnold chose to spend that much extra money, about $5 billion annually, to pay off the cities and counties for the VLF revenues they were losing.

If he hadn’t blown all that money, for all these years, we wouldn’t have this horrible deficit now. We wouldn’t be suffering from draconian cuts in education, health services, state parks, and needed public works projects.

But you can bet the wealthy owners of large car fleets don’t mind. There are 1.6 million rental cars in service in the U.S., probably an eighth of them in California. The owners of those relatively new 200,000 cars pocket at least a few hundred dollars per car each year from their reduced VLF fees. So they’ve enjoyed a huge windfall, at least tens of millions of dollars every year, hundreds of millions over the entire Schwarzenegger administration! Enterprise Holdings, the largest, has about half those cars. That means Enterprise alone has profited to the tune of several tens of millions of dollars each year from Arnold’s VLF policy.

And the large fleet owners have paid Arnold back in kind. According to campaign finance reports from 2003 and 2006:  Enterprise, $83,000; Hertz, $60,000; Avis, $50,000; Fed Ex, $37,000.

You can make the case that Arnold has handled the VLF brilliantly from the standpoint of his self-interest and that of his rich friends.

But the rest of California has paid a hell of a price.


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