Dan Walters: California confronts a budget deficit with more gimmicks

Californians and their politicians have been dodging the budgetary bullet for 30 years, refusing to reconcile demands for public services, from education to prisons to firefighting to health care, with a distaste for paying more taxes.

This could be the moment when this exercise in denial, which began with the passage of property tax-cutting Proposition 13 in 1978, begins to give way to reality since the state now faces an immense budget deficit and the usual gimmicks have been largely exhausted.

Or not.

Gov. Arnold Schwarzenegger, who was elected five years ago on a promise to end "crazy deficit spending" but morphed into an enabler, is poised to release a revision of the 2008-09 budget he first proposed last January, and by all accounts, the deficit will have ballooned by several billion dollars, thanks to an eroding economy.

The governor has mentioned several different deficit figures in recent public appearances, the last being a whopping $20 billion. But that included about a $3 billion reserve and very quickly, the number was informally whittled down by better-than-expected income tax collections in April.

Late Tuesday, it was reported that the deficit will be pegged at $15 billion-plus, apparently not counting a reserve, or roughly twice, in net terms, what it was in January when the governor released his first version of the shortfall. The January number was $14.5 billion over the remainder of the 2007-08 fiscal year and all of 2008-09, later reduced to $7.5 billion by some fiscal actions early in the year, including $3.3 billion in new borrowing.

Whatever the governor's number – and assuming that it's not politically skewed – it will be a substantial jump, meaning that reductions in spending alone, as Schwarzenegger half-seriously proposed in January, won't suffice. He's since urged legislators to "get creative" while indicating that he's open to closing some tax loopholes, although still opposed to broad tax increases. And it's apparent that he'll propose tapping the state lottery as an asset to provide an up-front injection of cash to ease the current crisis and set up a rainy day reserve fund.

Tapping into the lottery (and selling EdFund, a state student loan guarantee operation, which is already in the works) sound like pain-free approaches that spending advocates on the left and tax opponents on the right might embrace, as does another move floating around the Capitol, selling the State Compensation Insurance Fund, a state-owned workers' compensation insurer.

All, however, would essentially be gimmicks aimed at postponing the day of fiscal reckoning, perhaps long enough for a movie star-turned-politician to end his term without biting the big bullet. And, by the way, those who propose "temporary" tax increases are also in gimmick mode; one-time and/or temporary injections of cash don't really close a permanent, structural gap.

How such stopgaps would work politically is also uncertain. Schwarzenegger himself has said, for instance, that voters would have to approve any alteration in the state lottery, since it was created by a voter-approved initiative in the 1980s. And any change in the lottery could face potentially stiff opposition from powerful education groups (since the lottery's net proceeds now go to schools) and from casino-owning Indian tribes that don't want more competition.

One thing is certain: Schwarzenegger will renew his demands for long-term budget reforms as part of any budget deal. But what he wants has already been rejected by Democratic legislative leaders and their allies, including the school unions, which are just as implacable on that point as Republican lawmakers are in opposing new taxes.

It could be a long summer.

About the writer:

• Call The Bee's Dan Walters, (916) 321-1195. Back columns, www.sacbee.com/walters.