Monday, June 8, 2009
The State of California is facing a $24 billion budget deficit, and needs to balance its books by the end of this month. We speak to political consultant Leo McElroy about the ramifications of letting the budget deficit carry over into the new fiscal year, and to find out where cuts are likely to be made.
DOUG MYRLAND (Guest Host): I'm Doug Myrland, sitting in for Maureen Cavanaugh and you're listening to These Days on KPBS. Leo McElroy is a Sacramento political consultant and his analysis is often heard on KPBS Radio's Morning Edition. During this part of the program, though, we'll be able to have a more extended conversation about the very difficult political and fiscal choices faced by legislators and the governor as they work to close a huge budget gap. And, Leo McElroy, thanks for being with us this morning.
LEO McELROY (Political Consultant): Doug, glad to be here.
MYRLAND: Now we've all heard about this $24 billion dollar budget gap, and I think most folks are tuned into the rhythm of the calendar where July one, California starts a new fiscal year. But beyond those kind of basic things that happen every year, what's different about this year as opposed to every other year when there's a budget problem?
McELROY: Well, there are several things, one, the imminent likelihood that we run out of cash. Right now, the projected date that the state goes broke is the 29th of July. And on that date, if nothing has happened, and we don't see anything remarkable happening so far, on that date, they probably stop paying bills. The likelihood of being able to borrow much is not very good. California has a terrible debt rating, and the feds have not agreed yet to guarantee loans. So we could have a situation where state employees are not getting paid, where the people who do business for the state are not getting paid, and services provided by the state are not being funded, which would be pretty ugly. At the same time, at the legislative end, at the big building with the funny dome on it, the legislators seem to be playing a game of tit-for-tat with the governor. The governor keeps coming up with suggestions of fairly draconian steps that can be taken to cut the budget and try to get us back into balance with what we actually have coming in, and the legislature, so far, has been concentrating on relatively small tit-for-tat kind of deals. The governor says let's cut that agency, the lawmakers come back and say, no, let's cut one of your agencies.
MYRLAND: Well, Leo, what's the political calculus here where we have a governor who's really put out quite a few ideas. They don't necessarily add up to $24 billion but he's really put a lot more on the table publicly than any of the legislators seem to have done.
McELROY: Yes, he has, and they've been unpopular solutions, Doug, and this – this is a man who has been willing to go out there and say, here are some terrible things that we may have to do to balance this budget. And I think—and a lot of people that I know—think that the governor's providing political cover for the legislature by putting up a worst case scenario and essentially daring them 'if these are the worst things that can happen, what can you come up with that would be less disastrous for the state that would still achieve these savings?' The problem is that, so far, we're not seeing any significant action by the legislature that really cuts into that deficit. We're seeing nibbles here and there that don't amount to one percent of the deficit, and unless there's a will at the legislative end to either make the draconian cuts one place or another or to increase revenue—and I think pretty much everybody's decided that's not going to happen, that the Republicans execute people who vote for tax increases, then the question is, where is the solution going to come? They seem unwilling to rubber stamp the governor's suggestions but I'm not seeing major initiatives coming out of the legislature that would make any significant difference other than the possibility that the governor's call for a four billion dollar cash reserve in the budget is probably doomed. I don't think there's a likelihood the legislature's going to let him tuck four billion aside for a rainy day when it's raining through the roof right now.
MYRLAND: You said that everybody seems to be agreed, at least at this point, that a tax increase isn't in the cards but the closer we get to running out of cash, the closer we get to that July 29th date, doesn't a tax increase become more politically palatable for at least some of the people in the legislature?
McELROY: Probably not, and part of it is a system problem that we have in California. We cannot pass tax increases in California without a two-thirds vote, just as we cannot pass a budget without a two-thirds vote. We are one of only three states that have that restriction; Rhode Island and Arkansas are the lucky other two that are bound to super majorities. And this mandate puts the state in the wonderful position of being stalled by a minority of the legislature. It preserves the minority's bargaining chip but at the same time it can significantly stop us from taking action. Six Republican legislators broke ranks and voted for the last budget compromise, which included some tax increases. Five of those six are being targeted by recall motions, or at least being warmed up for recall motions, and have been notified by their party that they will get no more money from the party for their campaigns. So there really is a disincentive on the part of Republican legislators to provide those last few votes to put a tax increase or even a budget over the top if it's one that's found disagreeable to their caucus.
MYRLAND: If you could describe for us the situation that the governor and the legislators are facing with regard to where in the budget they can actually cut. Given the fact that we've had a number of initiatives and propositions passed that sort of earmark certain kinds of spending. Where can they go in the General Fund to find that $24 billion?
McELROY: Well, you know, that's probably the key systemic problem that we face in California, is that through budget making through the initiative process, even though well intended, we have never attempted to address the whole problem and the legislature is pretty much handcuffed to dealing only with the General Fund and not with those monies that are specifically set aside for other purposes. The General Fund essentially is education, health and welfare, and once you get past those, you're starting to get into money that's already entailed, through one mandate or another, even a lot of the education funding. So if you're a lawmaker, for example, and you're looking at the possibility of blowing up the boxes, as the governor calls for, and eliminating a number of state agencies and combining their practices, probably if you eliminated almost everything that they're targeting you would achieve a solution of about one-tenth of one percent of the projected deficit…
McELROY: …so you're – you're nibbling at the problem.
MYRLAND: Along those lines, in preparing for this interview, we looked at an article in the Sacramento Bee and former Democratic Senator Sheila Kuehl was quoted in one of those articles and said that – she said that eliminating, and one of those ideas was to eliminate the Waste Board and she was speaking about that, and said that it was being used as a scapegoat to divert attention from his (meaning Schwarzenegger's) failure to really bring a vision to solving this budget problem. She also said, it's an easy answer because nobody wants the real truth and nobody tells voters the real truth; the real truth is that everything that can be found to be cut has been cut years ago.
MYRLAND: Well, that's probably a pretty defensive mechanism for somebody who's drawing more than $100,000.00 a year for sitting on the Integrated Waste Management Board. That board is a notorious hidey-hole for ex-lawmakers who are looking for a way to make a buck while they figure what to do with the rest of their lives. And there is some really serious concern about whether that board, in the first place, is a full time board that people should be paid $100,000.00 a year to sit on and, secondly, whether it does anything that isn't already done by the state Department of Conservation. So it is a very minor part of the fix, one way or the other, whether the governor gets his way and it goes, or the legislature gets their way and it stays. It's pretty, you know, insignificant with regard to the total deficit. Nonetheless, it doesn't ease the question of whether that board is, as a number of boards may be, totally unnecessary.
MYRLAND: So, Leo, in the General Fund, how much money, approximately, is in the entire General Fund and then how many billions of dollars are we talking about cutting out of it to really get to a balanced budget?
McELROY: Well, let me give you just the figure on the cut. I don't have the General Fund figures in front of me at the moment, thank heavens. I try not to do depressing reading at this hour of the morning. But most of that $24 billion deficit has to come out of General Fund. There's just no place else for it to come out of. The governor can cut here and cut there and very little of that cutting is anywhere but in General Fund or is of an amount significant enough to make a difference. Almost certainly, some of the impact is going to come with regard to a borrowing exercise and the unwilling lenders will be local governments. I think everybody believes—everybody I know in local government—believes that they're about to have their pockets picked by the state, that funds that were to go to them, as relief from the property tax mess of a few years ago, are not going to come to them, they're not going to get the money, and local governments are going to be faced with having to make serious cuts that will have a direct affect on people's daily lives, whether it's cutting law enforcement, whether it's cutting fire stations and fire fighters, whether it's eliminating road maintenance. The local government money is that that is most close to the taxpayer and the impact of money coming out of those funds is going to be felt directly and almost immediately in almost every locality in California.
MYRLAND: Is that somewhat of a backdoor way to achieve a tax increase and force the local governments to increase retail sales tax, for example?
McELROY: It certainly would be one option and if you're in the legislature, sitting there and saying the Republicans are absolutely dead set against any tax increase and will punish any member who votes for it, then maybe you start looking around and seeing who else has the ability to raise revenues. And, at this point, local governments may, in some cases, have the will to achieve some sort of increase but that takes time, too, and the time is going to be down the road but the cuts are going to be almost immediate.
MYRLAND: Now Governor Schwarzenegger is termed out and there are a number of people who are, believe it or not, interested in having his job, as difficult as it's going to be.
McELROY: Death wish.
MYRLAND: I suppose it's fairly obvious that a potential gubernatorial candidate doesn't have a lot politically to gain by jumping in and making a lot of pronouncements about the budget at this point.
McELROY: Right. The one thing you don't want to have, as a candidate, is any ownership of the current mess. You want to be able to say 'they messed it up and I can pull us out of it.' Whether there's anybody who can say that with a straight face is another issue but the fact is, that's the political game, that's where it's going to be, and whether you're Jerry Brown and Gavin Newsom on the Democratic side or whether you're Meg Whitman and Steve Poizner and Tom Campbell on the Republican side, you do not want to have any ownership of the situation that exists in Sacramento right now; you want to be seen as the alternative who can come in and somehow wave a magic wand and straighten everything up.
MYRLAND: I don't want to keep talking about taxes too much but there have been some tax relief packages passed at least as part of the last go round of budget. There was some tax relief given to business. Is that a backdoor way, by maybe not causing a tax increase but sort of repealing some of the relief that was given? Is that another way to create more revenue?
McELROY: Well, it certainly would be one and I'm hearing a lot of talk about this, by the way. I know that there are citizens groups that are looking at that backdoor deal that was made that gave about $15 billion in tax breaks, down the road, to large businesses. It was a part of the package that the Republican caucus demanded to even supply any votes for the budget. There are citizens groups right now that are talking about putting together an initiative to repeal those tax breaks. And I suspect that if that were to get on the ballot, it would probably pass pretty overwhelmingly. But right now, the fact is that's enough down the road there probably would not be another special election this year, regardless. People don't like special elections, so it probably would be the middle of next year, long after this crisis has reached tidal wave proportions. The other thing, though, that may happen with regard to taxes, and I use the term loosely, is a little dodge that's been discussed at the legislature that they actually repeal a tax that exists and reclassify it as a fee. That can be done by a majority vote, not a two-thirds vote. They then, having repealed some taxes, can increase or create other taxes up to that same amount and establish them again with a majority vote. It's very likely that this, if they go ahead with it—and they've talked about it—would be challenged in court and I don't think anybody's making any guesses as to which way the courts would rule. It's an interesting stratagem that gets them past the two-thirds. It…
MYRLAND: It gets them past July as well.
McELROY: Yeah. Yeah. And that's the big problem. You know, right now, longterm solutions may be interesting, anything from changing the Constitution to doing something longterm with the way the entire tax structure is put together. But the problem is not a longterm problem; the problem is a problem that's coming home to roost in about a month and a half.
MYRLAND: In the couple of minutes that we have left, I want to talk just a moment more about the upcoming gubernatorial election, particularly because today in San Diego, in today's Union-Tribune, there was an article on the front page—it started on the front page—that discussed the topic of a gay marriage ballot measure in connection with the gubernatorial campaign. And I wondered if you had any thoughts about the strategy of putting a Proposition 8 type question on the ballot in 2010 at the same time we're electing a governor, and if that's going to complicate the political landscape or if it doesn't make much difference one way or another or – or what you think about that?
McELROY: Well, I -- You know, if you're looking at that, the first thing you look at, of course, is Gavin Newsom, who is openly running for governor and who has been very strong on that issue. And a question among Newsom supporters is, does he benefit if that were to happen? Or does it, in fact, make him a one-trick pony by forcing him to talk only about that issue. The fact is, he and Jerry Brown are not on opposite sides of that anyway so it's a divisive issue between them but it may be an identity one. The one trend that everybody can read is that public acceptance of gay marriage is increasing in the United States. We now have six states that recognize it, five New England states and Iowa. And in California where gay marriage was defeated quite strongly a few years ago, this last time around it was a fairly narrow margin. The question on the minds of most strategists who want to get Prop 8 off the books is, is the time right? Has the pendulum swung far enough that an election next year would be a good idea? Or would they be better to not risk defeat and wait until 2012 to go for it?
MYRLAND: Well, on one hand, if the trend continues, 2012, in theory there'd be even more people in favor of allowing gay marriage. On the other hand with a gubernatorial election, you get better turnout and I suppose there's a calculus there to be figured, who's turning out and who are the popular candidates and does – how does that affect the initiative really.
McELROY: Well, actually in 2012, if you go in the presidential primary election, that's your best turnout.
MYRLAND: Ah. Okay. Sure.
McELROY: The the presidentials draw more voters than the governor elections do, so that would be your maximum time, would be 2012, and that tends to be a more liberal voting public than the one that votes in 2010 which, in turn, tends to be more liberal than the ones who vote in special elections, who basically don't like government.
MYRLAND: And then again, the people who feel most passionately about the issue and wanting to get gay marriage allowed in California would be asked to be patient for several more years.
McELROY: That's right, and this is a tough sell. I mean, this is the same problem that's faced with those who look at the lawsuit that's being brought at the federal level to make it a civil rights issue and to force the federal government to step in and create a situation where denial of gay marriage is denial of a basic civil right. There are a lot of people on the anti-Prop 8 bandwagon, the gay rights bandwagon, who are really concerned about that and don't want to see that move forward because they think it will go to a Supreme Court that is still not friendly to them and might be a crushing defeat that would hurt them for years.
MYRLAND: Okay. Well, Leo McElroy, thank you very much. We've had a very wide-ranging conversation. I really appreciate you taking the time, and it's delightful to have a little extra time to talk to you. Normally, on Morning Edition, we only get about two and a half or three minutes worth of insight, so thanks for taking more time with us and have fun there in Sacramento.
McELROY: Well, yes, this is a fun town right now.
MYRLAND: Leo McElroy, independent political consultant and a frequent contributor to KPBS Morning Edition, and you're listening to These Days in San Diego.