Fiscal woes imperil Schwarzenegger

With California's debt topping $16 billion, the governor is stuck with a legislative standoff over tax hikes.

By Daniel B. Wood | Staff writer of The Christian Science Monitor

from the February 29, 2008 edition

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Los Angeles - Four years ago, he left Hollywood to save America's most populous state from "girlie men," legislators who "couldn't balance a checkbook." Calling himself the people's governor, he declared war on the state's special interest lobbies and promised to make a dysfunctional state work smoothly again.

Now, he finds himself in the same fiscal straits – $16-billion-plus in state debt – as the infamous governor he replaced in 2003's recall election, Gray Davis. And California's legislature is once again gridlocked.

Politicos laud Gov. Arnold Schwarzenegger for his leadership on global warming. They grant him kudos for his optimism and his embrace of post-partisan values – his Republican administration is peppered with Democrats. But the laundry list of failures is growing – from his ambitious healthcare reforms to his plans for overhauling the state's water infrastructure – and his own party faithful are falling out of step, causing a renewed legislative impasse.

Now, with an economic slowdown looming, some pundits are wondering aloud if Governor Schwarzenegger's tenure will ultimately be judged a failure. Others counter that the still-popular Schwarzenegger is doing as well as any governor can, given the downturn and California's built-in administrative problems.

"The mood in the capital is more upbeat [than before he took office] but that's about it … he's got us right back where Gray Davis had the state," says Sherry Bebitch Jeffe, a political scientist at the University of Southern California.

The downturn is not helping, she says, as it is depressing income for state departments while undermining negotiations for everything from healthcare reforms to prisons.

In trying to close the yawning fiscal gap, Schwarzenegger is locked in a battle with both the legislature and the state's independent legislative analyst. The governor has proposed a budget that would cut government spending by 10 percent, including healthcare and public assistance, and that would mean closing 48 state parks and slashing $4.7 billion from schools.

He also wants to use more borrowing and fund transfers, which critics say are well-worn gimmicks that will only postpone the problem.

Legislative analyst Elizabeth Hill has taken the unusual step of drafting a counter plan that would raise taxes by at least $2.7 billion and modify or eliminate a dozen tax breaks. Instead of closing 48 state parks, she says, government fees can be raised. And she has targeted what she calls a major "sloophole," that allows yacht buyers to avoid sales taxes by keeping their newly purchased boats out of the state for 90 days.

Many Democrats have embraced Ms. Hill's ideas, but the governor and GOP legislators have said they will continue to block tax increases.

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