On Jan. 9, Gov. Arnold Schwarzenegger unveiled his budget proposal for the 2004-2005 fiscal year. It included radical spending cuts that attempt to offset the projected $14 billion deficit. The governor may dodge a fiscal crisis, but this does not bode well for those at the receiving end of the budget cuts.
Schwarzenegger will have a difficult time selling his plan to Democratic lawmakers bent on spending more money. But the new governor is proving to be quite shrewd. During a special session of the legislature, he was able to charm the participants into putting a $15 billion “”recovery bond”” plan onto the March ballot.
Alongside this, the governor wants to cut $6 billion from state and local government, health and social programs and transportation projects. This is bad news for California¹s congested highways and public services for low-income Californians. Services such as Medi-Cal, which provides health care to millions of low-income families, may have their budgets cut.
An extra $1.3 billion will be cut from municipal governments to help offset the loss to the state due to the repeal of the car tax. Cuts from education, $372 million from the University of California and $2 billion from primary and secondary schools, will force students to pay more for their tuition and impede students from low-income households from attending public universities.
Assuming that the “”recovery bond”” initiative is passed and assuming that an economic recovery brings in $2.9 billion, there will still be a $6 billion hole to fill. Implementing this new bond initiative may be problematic on its own. Since 1989, California has already issued $110.8 billion worth of bonds through the ballot. Moody¹s Investors Services downgraded California¹s bond rating to three levels above “”junk,”” the lowest out of any state in the union.
These bonds will have to be offered at high interest rates to offset the high risk of investing. Taxpayers will have to finance these high interest rates and investors will not want or will be unable to invest in these bonds. Yet Schwarzenegger stubbornly adheres to his promise not to raise money through higher taxes.
“”Higher taxes will punish working families,”” he said. “”It will kill jobs and drive businesses away.””
But keeping options closed may prove to be harmful. “”It will be necessary for the legislature to Œlook beyond¹ this proposal and consider other options ‹ including additional savings proposals and revenue increases ‹ if it wishes to fully resolve the stateas chronic budget crisis”” said Elizabeth Hill, the California Legislature’s nonpartisan analyst.
But the main reason why California is in a budget crunch right now is because it spends too much money. The government will need to raise taxes on the wealthy and spend less in order to plug the deficit. It is unfortunate but the government will need to make cruel cuts into sacred pillars such as workers’ compensation, which is double the national average, and education, which consumes 58 percent of California’s budget.
“”We will not capitulate on Democratic core values,”” State Assembly Speaker (D-Culver City) Herb Wesson pledged. But standing by unsustainable spending now will be detrimental in the long run and will bankrupt the state. Schwarzenegger has shown that his muscles are for real, but his plan stands on uncertainties and does not take other viable options into consideration.
