Gov. Arnold Schwarzenegger signed the state’s $143 billion spending budget into law on Tuesday after a record-breaking 85 days of uncertainty over the future of California’s state budget.
The governor and state lawmakers were in a deadlock over how best to address the $15.2 billion budget deficit currently facing the state.
Some lawmakers believed a viable option was to increase borrowing from citizens.
But Gov. Schwarzenegger disagreed and threatened to veto the state budget if these provisions were included.
In response, state lawmakers claimed they would have the number of votes necessary to override the governor’s possible veto.
But Aaron McLear, the press secretary at the governor’s office, said the legislature did not have the votes to override the veto, and in the end, a compromise was reached.
The governor signed the budget after the inclusion of his own budget reform plan and the addition of provisions which reduced the amount of borrowing previously proposed.
“The budget he signed relies somewhat on borrowing, which is not the best, but it’s the best he could get the legislature to compromise on,” McLear said.
Some of the provisions in the reformed budget include a rainy day fund and a proposal to be put on the ballot which would grant the governor the ability to unilaterally cut the budget in the middle of the fiscal year if revenues do not come in as expected.
But Daniel Mitchell, a professor emeritus at the Anderson School of Management and the School of Public Affairs, said he believes the provisions the governor added will not feasibly solve the financial problems of the state.
“What he won in terms of concessions in the legislature do not have any immediate impact and do not guarantee a fix of the general problem because he also has to go through the electorate, and there’s no guarantee it will be passed,” Mitchell said.
The rainy day fund allows for a reserve to be built up so if the economy is in a downturn, spending won’t have to be cut and taxes won’t have to be raised immediately, because there is money in the bank.
But Mitchell said the measure to increase the rainy day fund, a provision which would not even be on the ballot until next June, cannot be collected in the middle of a faltering economy, because there is no money to allocate and no way to store up reserves.
“If anything, we’re probably running down any reserves that we had,” he said. “You can’t set aside a rainy day fund when it’s currently raining.”
But McLear said the rainy day fund measure would smooth out revenue and spending in California, because it would allow the state to set aside money left over from fiscally good years to be used only during times of fiscal instability.
Mitchell said the governor’s call for the ability to unilaterally cut the budget in the middle of the fiscal year will also be ineffective, as it likely to be met with opposition from groups with a vested interest in the budget ““ many of whom are campaigning to change the way funds are allocated.
But McLear said he believes the mid-year authority cut is an important function for any governor to have.
“It’s important for the governor to make cuts when we do not have the money to pay our bills,” he said.
McLear said the governor also has a re-districting initiative to be put to the ballot in November. He said re-districting would redraw district lines to make elections more competitive and less partisan.
“Then you elect more moderate and centrist leaders who represent California better than those who are to the far right or far left,” he said.
But Mitchell said even if the governor’s re-districting plan is passed by the electorate, it will not be effective immediately, because it is contingent upon new population data.
In addition, the governor vetoed about half a billion dollars’ worth of spending as part of his signing of the budget, Mitchell said.
He said that though Proposition 98 protects the K-14 education system, higher education and other services not protected by these sorts of legislation may be affected by the budget cuts.
This would cause school fees to increase because tuition and state funding are the major sources of revenue for public universities, he said.
“The more difficult the state budget becomes, the more the university will raise student fees and tuitions in order to cover its expenses,” he said.
Meit Shah, a fourth-year bioengineering student, said he supports the overall budget agreement that was reached and though having to raise tuition is unfortunate, it is a better option than raising taxes in a struggling economy.
“Instead of lending out more money that our generation is going to be ending up paying for anyway, it’s good to raise some of the tuition and expenses.”
Mitchell said he believes increased borrowing is not a fiscally sound policy in the current state of the economy, and it can ruin the state’s credit with lenders.
“At some point, people will be reluctant to lend at all, and you will have trouble raising money just to maintain state expenditures,” he said. “As that situation develops, you may even get a situation where lenders insist on passage of certain kinds of protections in the legislature as a condition of lending more money.”
Borrowing from financial markets might also not be a good option at this point, because the whole financial sector is currently in a state of turmoil, Mitchell said.
“There’s an awful lot of uncertainty, but it’s clear that the current budget is unbalanced and can bar next year’s budget and have a long-term impact,” he said.
But McLear said though the state economy will still be in a deficit next year and more difficult decisions will have to be made, he believes the governor is committed to pushing for economic stimulus and jump-starting the economy.
McLear said though California was hit hardest by the national housing crisis, he is hopeful that California’s diverse economy will speed its progress toward a possible future economic turnaround.