A news analysis
Uncertainty over a May 19 special election in which California voters will be asked to approve six measures to balance the state budget has raised a crucial question: What if the measures are turned down?
There are two answers. One is financial, the other is political. Both are not pleasant.
Failure of Propositions 1A through 1F would blow an immediate, $5.8 billion hole in the state’s budget, which would lead to more tax increases or spending cuts. Ironically, both of those scenarios might appeal to dueling constituencies that would offer those possibilities during the looming political campaign. Either one could drive down support for the ballot measures. Thus far, the governor, joined by some business groups that fear new taxes if the propositions go down, are traveling the state pushing the package.
Despite his celebrity, the governor’s performance ratings among Californians are dismal, although higher than the Legislature. He pushed a reform package in 2005 and was thrashed – he lost so badly that in the wake of the defeat, he hired Gray Davis’ top aide and the philosophical direction of his governorship shifted dramatically.
What are the consequences for Schwarzenegger if he loses this time?
“If this goes down, the governor is badly hurt,” said political historian Tony Quinn, co-author of The Target Book. “It’s his plan, he was the one – to his credit – to force the Legislature to buy his idea. When he came around to support tax increase, which hurt him with the right, that made it viable. It wasn’t viable before that.”
Schwarzenegger spokesman Aaron McLear did not offer details as to how the governor would proceed if the borrowing proposals are rejected.
“If the lottery doesn’t pass, you have to get $5 billion somewhere else,” he said. “That money would have to be realized elsewhere either through new revenues or more spending reductions. Passing the initiatives gives us the best chance to avoid future cuts or revenue increases, and that’s the governor’s focus.”
Conservatives oppose the package because of the tax extensions in Proposition 1A. That coupled with a low-turnout, could sink the proposals.
The big question mark is the role of organized labor, a powerful group has blocked the governor before, will come in this time at his side. “The question for me has always been whether labor will put in a bunch of money,” Quinn said.
Financially, the defeat of the package also is grim. It was designed to help close an unprecedented $41 billion state budget deficit. Without that, the budget wound is reopened.
In addition to the $5.8 billion budget hole – the total amount of Propositions 1C, 1D and 1E – the revenue projections for the economy may be coming in lower than expected – perhaps $4 billion, noted Assembly Speaker Karen Bass. Revenue projections are a key component of any budget. Coupled with a failure of the measures at the ballot, the lower projections could mean the state will be looking at a new $10 billion hole if the propositions are turned down.
If the fiscal package is defeated, the lawmakers and the governor will huddle on plugging the deficit in a meeting that is expected within days of the election. A revised budget is likely to be drawn up as quickly as possible, probably in the last week in May, according to Capitol sources. One target date already discussed is May 25.
The passage or failure of the May 19 ballot propositions is not directly linked to the flow of money coming in from the federal government. But there is confusion in the Capitol because of the conflicting numbers – nobody agrees on how much is coming in.
And the federal stimulus money does have an effect on the state’s spending plan.
For example, if more than $10 billion in federal money flows to the state’s General Fund, two items planned in the state budget – an additional tax increase and a package of cuts – will not take place, a loss to the state of about $2.3 billion. That extra money will have to come from somewhere.
The Legislative Analyst, who advises the Legislature on fiscal issues, put the amount of the federal impact on the General Fund at $31.5 billion, but acknowledged that the figure was incomplete. A day before, the non-profit California Budget Project said the number was $50.7 billion. Last week, the Federal Funds Information for the States program identified some $26 billion in 42 separate programs. Fiscal experts within the Capitol estimate the total stimulus package at $60 billion.
The ballot propositions, the result of bitter negotiations, are bound by fragile threads.
Thus far, groups that normally battle each other – the teachers and the governor, for example – are holding their noses and supporting the package as a whole. The teachers want the nearly $8 billion in Proposition 1B and the governor wants the spending cap in Proposition 1A, for example, and their price for getting those provisions is support for the package as a whole.
Two measures, Proposition 1D and 1F, take $800 million money from programs already approved by voters – from children in Proposition 1D and from mental health projects in Proposition 1E – and uses it to balance the budget. As Speaker Karen Bass said, getting voters to agree to tap those two programs may be a tough sell, and it gets harder when, at the same time, voters are again being asked to borrow money, this time against the proceeds of the state lottery.
Ironically, the only measure that may generate enthusiasm is the final proposition 1F, which blocks pay raises for lawmakers when the state is running a deficit.