Arnold Schwarzenegger believes – correctly – that a huge factor in California's chronic budget travails is the feast-or-famine nature of the state's revenue stream.
There is a certain erratic quality to the state's economy, a few years of headlong expansion, followed by a few years of despair-inducing decline with the cycle occurring roughly once a decade.
The revenue system, dominated by a progressive personal income tax, is even more erratic. Taxes pour into the state treasury during even mild economic booms, but when the economy turns sour, revenue plummets.
When the state is flush, the Capitol's politicians succumb to political pressure from constituents and interest groups to expand spending or to cut taxes, worsening the impact of the inevitable decline in the economy and in revenue.
Given their lack of self-discipline, the only practical ways to end this corrosive syndrome are either constitutional spending limits – which would redirect occasional windfalls into reserves, debt reduction or one-time expenditures – or reducing revenue volatility.
Since the earliest days of his governorship, Schwarzenegger has championed the former with almost no success. After adopting a nearly meaningless spending limit in 2004, voters rejected much tougher ones in 2005 and earlier this year.
With his governorship running out, he still wants a spending limit but has also shifted gears, creating a blue-ribbon commission, headed by businessman Gerald Parsky and appointed by the governor and legislative leaders, to devise tax reforms.
The Commission on the 21st Century Economy, however, is ideologically divided and has already missed two deadlines. Earlier this month, it set aside the plan that Parsky had been pushing, centered on flattening the income tax to reduce its reliance on a handful of wealthy taxpayers whose incomes and tax payments vary widely, because commission liberals would not agree to push more of the tax burden onto middle-income taxpayers.
Instead, the commission is now trying to write a composite plan that reduces volatility with elements such as removing property tax limits on commercial property, extending the sales tax to services and imposing a "carbon tax" on fuel.
It's uncertain whether the commission can come anywhere close to a consensus on tax reform, but Schwarzenegger has now given it until Sept. 20 to complete its plan, five months later than the original deadline. And he says he will call a special legislative session to act on it immediately – even though he doesn't know what it will contain.
Any one of the elements now under consideration would be highly controversial, but somehow, Schwarzenegger not only expects the commission to come up with something workable, but also expects the Legislature to quickly adopt its provisions.
That has about as much chance of happening as the new state budget has of avoiding further deficits – just about zero.
Call The Bee's Dan Walters, (916) 321-1195. Back columns, www.sacbee.com/walters.
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