State budgeteers handcuffed by mandates

It’s the budget for the nation’s largest state, the world’s seventh-largest economy, and each year the titans clash as the Capitol decides spending for the coming year. This year, $146 billion is on the table.

Not!

For every dollar in the governor’s $146 billion state budget plan, perhaps 12 cents is actually up for grabs–the Schwarzenegger administration says it may be only 8 cents and some Democrats in the Capitol say it may be only nickel. One estimate by the governor even put it as low as 1 percent. “The policy implications here are enormous,” said one veteran budget analyst in the Capitol. “Each year, [lawmakers] make fewer and fewer decisions, and each year the decisions they do make are more and more concentrated.”

The rest of the huge budget is already locked up–for schools, debt service, transportation programs, habitual criminals, pensions, sex offenders, health care for the poor, prisons. Half the spending is committed to schools alone, as voters demanded two decades ago, and a decade before that voters ordered property taxes rolled back by more than half–leaving the state on the hook, still, to make up the difference. That old saying, “take care of the pennies and the dollars will take care of themselves,” doesn’t seem to work here.

“In budget dollars, you must decide between variable and fixed, and the vast majority of our budget dollars are fixed,” said Sen. Dave Cox, R-Fair Oaks, the vice chairman of the Senate Budget Committee. “Whatever the percentage is, the overwhelming majority of the budget is already obligated to go to a particular place.”

It is that variable money that gets the attention in the Capitol’s annual budget dance.

There is irony here: Lawmakers and Gov. Arnold Schwarzenegger complain bitterly about their lack of authority to decide spending. But that’s because they, currying the favor of voters in an array of budget-linked ballot measures, painted themselves into a corner. The public’s suspicion of politicians, the minority Republicans’ exasperation at the majority Democrats’ control of the purse strings, the difficulty of making unpopular cuts, legislative gridlock, and inexperienced lawmakers all give ballot-box budgeting a certain allure.

“There’s no new money. ‘Three strikes’–no new money. Proposition 1A, local government financing–no new money. Infrastructure bonds–no new money.
Jessica’s Law–no new money. There is a theme here: You are left trying to figure out how you stretch the dollars you had before. But you’ve still got to pay your bills,” said Jean Ross of the California Budget Project, a nonprofit group that provides an annual, independent analysis of the state budget.

“One problem you’ve got to recognize is that we don’t have the depth of knowledge that we’ve had in years past because of term limits. You anticipate that they would be up to speed when they get here, and then they are asked to vote on a budget,” Cox said.

Even the pieces of the budget that ostensibly are on the table–the prison system, the California State University and the University of California, for example–have powerful constituencies that resist tampering and, in the case of prisons, court protections. Even facing an $8 billion deficit over two years, would Gov. Schwarzenegger or lawmakers risk the political fallout of cutting billions of dollars from those programs? There might be room here, but not much. Since new taxes are out–often called “fees”–that leaves only the knife, unless new revenue pops up.

Schwarzenegger’s lead budget writer, Mike Genest, believes only 8 percent of the general-fund budget, although his formal assessment of the spending plan suggests a far tighter lockdown. Of $103.8 billion in general-fund spending proposed for 2007-08, only $1 billion is discretionary. The rest is spoken for, led by public schools with $46 billion and a $58 billion for corrections, Medi-Cal, the judiciary, transportation and retirees’ health care, among other items. Another $900 million is required by court orders, lawsuits, contracts and other obligations.

Less “than 1 percent is proposed for policy choices. The remainder is required by the constitution, federal laws, statutory entitlements, binding labor agreements or court orders,” Genest’s analysis says. “Consequently, the only way to hold down spending is by approving very few discretionary-spending increases while changing state law to reduce the costs of programs.”

Legislative Analyst Elizabeth Hill, the Legislature’s nonpartisan fiscal adviser, was not convinced. Her tones were neutral, but the gist of her comments was clear: The governor and his staff are spinning the issue.

“We think there is more discretion than there might seem at first blush,” she said.

On paper, Schwarzenegger’s revised budget is a straightforward document. It includes a $2.2 billion emergency reserve, elimination of a $1.4 billion “operating deficit”–a term that even veteran budget analysts haven’t nailed down–and proposals to raise cash by selling off a student-loan guarantee fund for $1 billion and turning the state lottery over to private vendors in return for $37 billion over four decades. It includes the $103.8 billion in spending from the general fund–the main coffer of sales, corporate and income taxes–and assumes improved revenues from a strengthened economy, plus cuts in the welfare system known as CalWorks.

The notion of selling off the lottery and student-loan fund for a short-term gain raised Hill’s and other budget-watchers’ eyebrows, as did the proposal’s failure to account for hundreds of millions of dollars that may be required in the state’s still-unresolved contract dispute with the prisons’ correctional officers. But the administration made it clear that its maneuvering ability was limited by the locked-in nature of the budget.

“The problem with giving them less and less discretion is that revenues and expenditures change from year to year, sometimes dramatically. If you don’t have any flexibility to react to that, you create the kinds of problems we’ve had for the last few years. And that’s the problem,” said Andrew LaMar, a spokesman for Senate President Pro Tem Don Perata.

“When everything is locked down, the political choice for folks is either cut the programs that people know well and are popular, and that makes people unhappy. Or, you can raise taxes,” he added, “and that makes people real unhappy.”

Contact John Howard at john.howard@capitolweekly.net