Budgeting the future

Schwarzenegger's ultimate test will be bridging a $15 billion gap - without new taxes.

Friday, the prologue to Arnold Schwarzenegger's political drama ends. Act One is fixing the state budget, and with the introduction of his budget proposal Friday afternoon, Governor Schwarzenegger must at last lay aside vague speeches and campaign promises for specifics.

In a state that has a habit of turning actors into politicians, the newest understudy has already arrived at his Oscar moment - a scene that could go a long way toward deciding his future. The task is enormous. He has six months to convince one of the most liberal legislatures in the United States that the primary way to balance a budget deficit estimated at $15 billion is to make massive cuts - without raising taxes by a single cent.

Says one political scientist, "It's going to get ugly."

Then again, the political process was always more Pollock than Pissarro, a splatter of egos and ideas gradually crafted into something sensical. What is needed, say observers, is a strong guiding hand, and even amid the harrumphs of indignant legislators, the outlines of Schwarzenegger's budget at least offer hope that, finally, California might put its financial house in order.

"Based on what I've heard so far, it seems that [the administration] is looking seriously at how to fix the budget," says Joe Canciamilla, a moderate Democrat in the state Assembly. "At this point, I'm optimistic that the budget is something we'll be able to sink our teeth into."

He stops far short of suggesting that he'd back the Schwarzenegger plan. For one thing, the administration has kept an unusually tight lid on Friday's proposal, so Canciamilla wants to see the specifics first. Speeches and reports, however, point to a budget with no new taxes. The administration will seek to save money by reorganizing and streamlining government, trimming payments to education, and renegotiating contracts with native American casinos.

What strikes Canciamilla most is that Schwarzenegger also seems to be preparing the Legislature for severe cuts, particularly to public-health and welfare programs. Canciamilla doesn't necessarily agree with that tactic, but says it suggests that Schwarzenegger is taking an honest look at the situation. "He is facing reality," says Rod Kiewiet, a political scientist at the California Institute of Technology in Pasadena.

Not all agree. Some legislators have looked at the threads of the proposal and seen only Republican retread. In an overwhelmingly Democratic legislature, any effort to erase a $15 billion deficit mostly by cuts is suicide, they say. "If the object is to come out with a budget that takes steps toward elimination of the state's structural deficit, that cannot be done without some sort of increase in revenues," says Tim Hodson, a political scientist at California State University, Sacramento. "The majority party is not willing to do the cuts necessary to get rid of a [billion dollar] hole."

Clearly, the math is difficult no matter who does it. Schwarzenegger has negotiated a delay in a $2 billion payment to state schools, shaving that off the budget. An improving economy could help, too. But the turnaround won't be nearly enough. Even in a best-case scenario, all of Schwarzenegger's streamlining and reform could still leave billions to cut.

Some analysts wonder if even Schwarzenegger himself thinks he can sell huge program cuts to the Legislature. Though he referred to himself as the ultimate salesman in his State of the State address, $15 billion "is a huge amount to cut," says Larry Gerston, a political scientist at San Jose State University. "Once the proposals begin to resonate" and people see the depth of the cuts, he says, Schwarzenegger "will be forced to say, 'I did everything I could, so now I come to you, hat in hand, to raise taxes.'"

Schwarzenegger has remained firmly opposed to new taxes. Yet there is a mounting sense in Sacramento that, one way or another, bold steps are needed. In recent years, state budgets have essentially papered over the problem. Now, California's bond ratings are the lowest of any state, and have been sinking. Schwarzenegger is already asking voters to approve a $15 billion bond in March to pay for debts created by previous administrations. If he tries a similarly cautious path now, "bankruptcy is not out of the question," says Dr. Kiewiet.

Adds Canciamilla, "There is a recognition that we have run out of smoke and mirrors and we have to deal with the fundamental problem." In pushing the $15 billion bond measure through the Legislature last month, Schwarzenegger showed he could slog through the political trenches to reach compromise - a quality he may need in abundance now. "It's going to get down and dirty," says Dr. Gerston. In politics, even with good results, "you don't want to see what goes inside."

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