For California budget, now comes hard part

Voter approval of two budget propositions here Tuesday - backed by Gov. Arnold Schwarzenegger and considered a crucial referendum on his ability to govern - are not the end of California's financial problems. Program cuts, service trims, and possible tax reform are still on the table as the state addresses its spending and deficit (over $14 billion this year alone, and $22 billion in debt).

Related stories: 03/02/04 Schwarzenegger's rising credibility 03/01/04 Just This Once, California 02/24/04 California's decision day nears 02/09/04 Gambling a solution for California?

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But voter approval is the beginning of legitimacy for Governor Schwarzenegger. Many feared the Hollywood personality would be unable to carry out his plans to bring fiscal sunshine to the Golden State.

"The real message of California's vote Tuesday is that it strengthens the governor's hand dramatically," says Tony Quinn, a statehouse analyst. "Now he has proven to legislators that if they don't do his bidding, he will go over their heads to the public. He is now in the driver's seat."

The passage of Prop. 57 (which allows the borrowing of $15 billion to keep government running through June) and Prop. 58 (aimed to curb overspending) give Schwarzenegger more time to design changes in government. The $15 billion in borrowing - to cover operating deficits left by the previous administration - will fund state payrolls through June. It also helps legislators avoid larger cuts and tax hikes into the summer - measures that could have hurt the state's ability to attract and retain employment it needs to reverse its economic slide.

Though many complain it isn't enough, Prop. 58 makes it harder for legislators to overspend. When the '90s high-tech boom went bust, revenues plummeted, but spending continued based on tax projections of good times. The new measure limits similar missteps and makes rainy-day funds.

But more important than such details is the fact that Schwarzenegger has stepped outside the legislature to take his agenda to the people. That tactic alone, with a come-from-behind win attributed to his charisma and energy, gives him a giant stick to wield as he and the legislature tackle their prickly task.

"The Democrats that Arnold faces in the legislature are now facing huge pressure to compromise in his direction on all the issues on the coming budget," says Jack Pitney, a political scientist at Pomona College. "They know if they don't do his bidding, he will roll over them."

Voters also rejected Prop. 56, which would have lowered the threshold for approval of the state's yearly budget - a sign public of skepticism of the legislature.

Shortly after taking office in January, Schwarzenegger laid out his four-part governing agenda. Parts 1 and 2 were passage of the two bonds; Parts 3 and 4 are moving the current budget toward "structural balance" (by eliminating overspending) and reforming the business climate to help increase tax revenues.

"We are two down and two to go," says H.D. Palmer, lead spokesman for the governor's finance department.

First up, by most accounts, is the state's monstrous workers' compensation system, which rings at $25 billion a year.

Beyond that, all programs are asked to streamline. "Our work is only beginning," Schwarzenegger told a victory crowd. "The people are sending a message to both parties that they want us to work together. This is a victory for financial reform, but also [for] bipartisanship." Ideas include limts to enrollment at state colleges, deferring billions in transportation improvements, and capping enrollments in social programs - all of which face opposition.

"It's going to be very tumultuous.... There's already a lot of cat herding going up there with legislators already beginning to look for other jobs," says Jack Kyser of the Los Angeles Economic Development Corporation. "Many others are not worried about compromise because they come from recently redrawn districts that have significantly eliminated real opposition."

Some key Democrats, however, feel the climate is right for compromise. "California, like the rest of the nation, needs to have a very forthright debate about what we really value and how we pay for [that]," says Darrell Steinberg, Democratic chair of the Budget Committee. "We are trying to embrace the challenge of getting more bang for our buck in every corner," he says, "realizing that every dollar saved is one we don't have to cut."