California Insider

"This is how we move forward. Everyone chips in a little bit, but does it happily rather than having anger and protests afterward."

This quote from Schwarzenegger, in the LA Times, was about his deal with higher education officials to cut university budgets this year in exchange for agreeing to increases later. I won't weigh in here on the higher ed deal, because I haven't seen the whole thing.

But the comment suggests that the governor is quickly falling into the same trap that has ensnared so many in the Capitol: confusing institutional negotiators for the "people" on whom he says he relies for support. Whatever the president of the University of California might say, I am quite confident that the students most affected by this deal will have some anger, and perhaps some protests, in the weeks ahead.

In the meantime, Democrats in the Legislature might also rebel, since they had made protecting higher education from deep cuts next year one of their top budget priorities.

The California Redevelopment Assn. staff is telling its member agencies that the local government deal with Schwarzenegger is done. According to the CRA, the agreement is basically the same as the outline sketched out a few weeks ago: cities, counties, special districts and redevelopment agencies lose a combined $1.3 billion this year and next. The cut ends after that; then the locals give up $4 billion in vehicle license fee money and get the same amount of property tax in return. If the voters approve, these agencies get constitutional protection against future tax shifts engineered by the state.

The deal also includes mandate relief, with local agencies getting the right to ignore state mandates if they are not funded, and prohibits future tax shifts, rather than merely requiring that such shifts be approved by the voters, as the local governments' own initiative would have done.

Purely from the perspective of local governments, this would be a major reform. They get the "protection" they crave and stability in future budgets. Trading car tax money for property tax makes sense, and would to some extent restore the fiscal incentive to approve industrial and residential developments that generate property tax rather than only sales-tax generating retail projects. But Schwarzenegger, unwilling to challenge the clout of city officials, ducked an opportunity for historic reform. He could have made this a truly good deal for local government and the economy by shifting more property tax their way in exchange for an identical amount of sales tax, say, a half-cent. Perhaps the Legislature will save him from his mistake, but probably not. Once complicated deals like this are blessed by the governor and the stakeholders, they become very difficult to undo.

You can download a PDF file here that lays out the entire deal from the perspective of the redevelopment agencies.