California Insider

If nothing else, Gov. Schwarzenegger is keeping people off balance. On the eve of a trip that had been billed by aides as a way to put pressure on legislators to vote for his fiscal recovery plan, Schwarzenegger told reporters he wasn’t targeting lawmakers and would be happy to have them appear on stage beside him. And after laying out a spending limit that threatened to revise Proposition 98 – the constitutional school spending guarantee – Schwarzenegger said that he was entertaining suggestions from the education lobby, including the California Teachers Association, for how to change that detail. Schwarzenegger also gave mixed signals on taxes, telling reporters that his opposition to an increase is based less on principle than on his view that the voters don’t want one. If the voters change their mind at some point, Schwarzenegger said, he might, too.

The governor was scheduled to meet this morning with the Assembly Democratic Caucus and then fly to San Diego for a rally to promote his plans. Flying with him, apparently, will be San Diego Assemblywoman Christine Kehoe, a Democrat who took him up on his invitation to appear on the platform with him. As the governor and the assemblywoman jet south, Democrat Treasurer Phil Angelides will be kicking off his campaign to fight Schwarzenegger’s bond measure.

And back at the Capitol, staff negotiators for Democratic lawmakers and the Republican governor are finally getting down to business on the details of a spending limit, which is probably a good thing, with a Friday deadline looming for approving measures to appear on the March 2 ballot.

Despite considerable confusion over details and strategy, Schwarzenegger’s bottom line at the moment seems clear enough:

--He wants a bond measure in the $15 billion range to refinance the state’s debt. While $15 billion is more than needed to cover last year’s $11 billion carryover deficit, it’s less than the $25 billion Schwarzenegger aides say represents the total of deferred obligations pushed from the Davis years into this and future budgets. Schwarzenegger’s bond, by gaining voter approval, would make last year’s borrowing legal and provide a bit of cash to ease the transition back to a balanced budget. Some Democrats seem to want a smaller bond, perhaps just enough to match the legally questionable borrowing in last year’s budget. Others might want to push the number up a bit, closer to $20 billion, to cover some of gap in next year’s budget. I’m still betting that it will be higher rather than lower.

--He wants a spending cap that does two things: provide some measure of short-term discipline to guide the road back to a balanced budget over the next two years, and assure voters that California will never again descend into this kind of fiscal abyss. Those two goals need not be accomplished within a single formula. The strict spending limit for the near future could be accomplished by negotiators simply agreeing on a dollar cap for spending each year, or a method to reach such a number. The long-term problem can be attacked with a formula that sets aside some portion of future revenues in a rainy day fund to be drawn down in bad economic times.

One possible method I’ve been exploring but haven’t seen mentioned anywhere: base each year’s spending on some kind of running average of past revenues, say, three years. Currently, lawmakers budget based on real-time projections of next year’s revenue, and when those projections prove overly optimistic, you get a deficit. Budgeting based on revenue averaging isn’t foolproof but basically slows down the process, preventing budget-writers from spending a windfall for ongoing programs until it’s clear that the new money is here to stay. Such a device all but assures that you won’t spend more than you take in for any one year, which would please Republicans. But it also allows legislators to eventually spend all that the state takes in, which would please Democrats. And for good-government types, revenue averaging would provide insurance against deficits while leaving the debate over the proper size of government to each new generation of policymakers.

--Schwarzenegger’s other goals, for workers compensation reform and mid-year budget cuts, are urgent but not ballot-dependent, so don’t look for action on them this week.

Now that SB 60, the illegal immigrants' drivers license bill, is about to be repealed, speculation shifts to exactly what Schwarzenegger envisions as the next move on this issue. He has said since the campaign that he was open to some sort of compromise. In an interview Monday with Univision 19 anchor Pablo Espinoza, the governor suggests that he will agree to legislation giving illegal immigrants licenses as long as they are able to show proof of insurance, undergo background checks and have their digital fingerprints recorded. Here is a transcript of the interview provided by the station:

Reporter:
"You did say that to me when we talked one on one (Sept. 6, 2003) that
you would consider a package deal that would have included a requirement of insurance for those people that are going to get the drivers license. That I know is something that you believe in. Do you also believe that all undocumented immigrants will be able to get a drivers license if they present insurance, if they have a background check, fingerprints?

Governor:
"Absolutely...yes. This is what we are going to work on. This is what we are going to talk about, but right now the most important thing is to get this passed (the repeal of SB 60) so we can move to other issues. I think Senator Cedillo was extremely gracious and helpful with this whole thing. He is a great leader, he understood what would be the best thing for California; rather than just doing an immediate fix, but to make everybody happy. It doesn't make sense if the majority of Californians run around and hate the idea of undocumented immigrants having drivers licenses because there is no background check, because it doesn't solve the problem with insurance. Let's do it the right way, let's make every Californian happy and let's make the undocumented immigrants happy."