A Lesson in Political Math From the Governor

Gov. Schwarzenegger’s State of the State address and his budget proposal brightened the post-New Year’s doldrums this week by demonstrating that the governor still possesses an endearing faith in the power of political math.

Political math is unlike real math in that it has no correlation with the natural world. It’s what allows the governor to propose a $68-billion infrastructure bond, nearly twice the size of the state’s current general-obligation debt load, while assuring us in almost the same breath that this can be done without raising taxes.

Political math also allows him to claim that his proposed budget is balanced, also without a tax increase.

Wrong on both counts.

First of all, it’s not balanced, insofar as it anticipates general-fund spending of $97.9 billion and revenue of $91.5 billion. The plan is to fill the gap by raiding the state’s reserve fund, which has been stocked with borrowed money. In other words, for the third year running, the governor will spackle over a deficit with debt. This is known as not “living within our means.”

As for avoiding tax increases, he means only the sort of increases that strike chiefly at the wealthy and powerful, such as raises in the top income tax brackets. Of the hidden taxes that strike at middle- and lower-income workers and the poor, the Schwarzenegger budget is, as always, a feast.

He proposes to suspend for another year a tax break for schoolteachers, many of whom pay for classroom supplies out of their own pockets. Eliminating this tax credit, which ranges from $250 to $1,500 depending on a teacher’s years of service, will extract $210 million in revenue from about 305,000 educators and their families. The richest 300,000 state taxpayers, who avoid tax increases via budget provisions such as this, report average annual incomes of more than $500,000. The average salary of a full-time K-12 teacher in California last year: $38,845.

Other groups drafted to subsidize the wealthy include the disabled and poorest of the poor. The governor wants to delay a cost-of-living increase due next year for recipients of supplemental security income by 18 months, to July 2008. These recipients are, by definition, needy seniors, the blind, and the disabled. The proposal would deprive them of a total of $233 million, keeping the money for the general fund, over two budget years.

Another $307 million would be saved for the rich by withholding cost of living increases, or COLAs, scheduled to be paid to recipients of CalWORKS grants. The recipients generally are poor families with children.

The governor reassured the press at his post-budget news conference this week that “we’re not picking on anyone.” Indeed, I wouldn’t wish to suggest that wealthy taxpayers aren’t being asked to make sacrifices of their own. The governor proposes to extend for another year the state’s policy of collecting sales tax on luxury cars, boats and aircraft purchased out of state and brought into California within a year of acquisition. As a result of this stringent policy, buyers of such trophies will be forking over an estimated $35 million, or fully one-sixth of what’s being squeezed out of the teachers alone.

The glittering centerpiece of Gov. Schwarzenegger’s 2006 fiscal package remains his capital improvement program. No one should deny him credit for paying attention to the critical issue of infrastructure construction and maintenance.

It would only be churlish to observe that until now, his approach to the maintenance of infrastructure has been more or less complete disregard: The last five-year statewide infrastructure plan, which the governor must by law produce every year, was drafted by Gov. Gray Davis in 2003.

In other ways, Schwarzenegger seems oddly determined to undermine his own aspirations to be California’s next great master builder. He proposes to couple his $68-billion bond issue with a constitutional amendment forbidding the issuance of any debt that would drive the state’s debt service ratio -- that is, interest and principal payments due on outstanding bonds, as a percentage of general fund revenue -- above 6%.

This idea has obvious flaws. One is that such arbitrary fiscal restrictions represent a dereliction of duty by the governor and legislature; it’s their job to determine what the state’s balance sheet should look like at any given moment, based on immediate and long-term needs. Another is that if the administration used real math, it would have to admit that the proposed infrastructure bonds easily will bust the proposed limit.

As was aptly observed by State Treasurer Phil Angelides, a Democratic candidate for governor, the administration could project that the ratio would stay below 6% even with the new bonds only by excluding $10.3 billion in deficit reduction bonds from the calculation. By this stratagem, they made more than $400 million in annual interest payments disappear as though by waving a wand.

He didn’t mention another assumption underlying Schwarzenegger’s rosy scenario: that the state won’t ever need to float bonds for any purpose other than the governor’s pet infrastructure projects. Given that critics across the political spectrum have already mentioned billions of dollars worth of critical needs left out of Gov. Schwarzenegger’s master plan, including affordable housing and mass transit, that’s a dicey assumption at best.

It’s positively bracing to see Schwarzenegger endorse university construction, road-building, and bridge-fixing. If he will only stop pretending that all these things, and more, can be had without anyone’s suffering the slightest bit of fiscal pain, his transformation into a real-life leader will take a huge step forward.

Golden State appears every Monday and Thursday. You can reach Michael Hiltzik at [email protected] and view his weblog at latimes.com/goldenstateblog.