Dan Walters

Dan Walters: ‘Save or spend’ is the main issue in budget negotiations

Dan Walters
Dan Walters

It’s been nearly a decade since the Capitol’s politicians last had a substantial amount of extra money to spend.

During the mid-2000s, a short-lived housing boom poured billions of extra dollars into the state’s coffers, and politicians pumped them out as fast as they came in. General fund spending exploded by nearly 30 percent in three years.

Then-Gov. Arnold Schwarzenegger was an eager spender to overcome declining popularity as he sought re-election in 2006.

Schwarzenegger used the windfall to placate interest groups – unions, particularly – that had whipped him a year earlier on ballot measures, even though the revenue jolt, everyone knew, was temporary.

Within two years, the economy was in free fall, revenues were plummeting, and the state had begun to run up massive budget deficits.

It was not the first time that Capitol politicians had squandered a short-term spurt of revenues. But would it be the last?

That’s the overarching issue as the final process of writing a 2014-15 budget begins. Revenues have been climbing sharply, due both to an expanding economy and a temporary tax hike voters approved in 2012.

Schools and health care for the poor automatically claim much of the extra money. Gov. Jerry Brown is willing to spend a bit more but worries aloud about what may happen when the economy cools and the temporary taxes expire.

He wants to divert a big chunk into a “rainy-day fund,” plus pay down short- and long-term debts, and is publicly scornful about costly new entitlements.

Legislative leaders endorse building up reserves but are leery about debt retirement and want to spend more than Brown, based on a projection by their budget analyst of $2 billion-plus more in revenue than the governor assumes.

Brown’s general fund budget is $107.8 billion, up $7 billion from the current year, while the Senate wants to spend just under $110 billion and the Assembly nearly $111 billion.

The Legislature’s extra spending includes an expansion of pre-kindergarten that Senate President Pro Tem Darrell Steinberg seeks in his final year, and several welfare grant increases in the Assembly’s version.

A two-house conference committee will resolve minor differences among the three budgets, while Steinberg and newly installed Assembly Speaker Toni Atkins will dicker with Brown on big-ticket items.

Brown should have the upper hand because he can strike or reduce appropriations, but there is one he’s almost desperate to obtain – a big commitment of “cap-and-trade” funds for his legacy project, the financially shaky bullet train.

That makes Brown vulnerable. Steinberg has broadly hinted that if the governor wants his bullet-train money, he’s going to have to loosen up on other spending.

It will be an interesting political chess game.