Gov., Democrats should push for a budget victory

FROM SACRAMENTO —  Gov. Arnold Schwarzenegger and Democratic legislative leaders are close to agreement on a landmark red-ink reduction package. But to see how close, you’d have to look inside Schwarzenegger’s head.

And I don’t know anyone in Sacramento who knows how to do that.

When he vowed to veto the $18-billion package of tax hikes and spending cuts that Democrats passed in both houses Thursday, what was that all about?

Was he merely trying to squeeze Democrats for more on his holiday wish list?

Or did he really not want any part of this Democratic scheme, considering it too politically controversial and legally risky?

Was he seizing an opportunity to kiss up to estranged Republicans, who had sent him a letter requesting his veto? Does he just enjoy showboating? Hearing his own voice berating legislators and calling for special sessions?

That’s his style. He tries to pressure the Legislature. But the bombast has had diminishing impact, particularly on Republicans. He loves to flee Sacramento for photo-ops. And on Friday, he was in Fresno -- again -- when Democratic leaders were in Sacramento prepared to negotiate.

“He seems to think that we need to be here all the time,” Assembly Speaker Karen Bass (D-Los Angeles) told Capitol reporters. “He needs to be here and join us.”

And he needs to negotiate directly with Bass and/or Senate leader Darrell Steinberg (D-Sacramento) -- face to face, not over the phone or via e-mail, and definitely not through some staffer.

A little rapport with Republican legislators would help, too. Schwarzenegger couldn’t deliver any of their votes for his belated tax increase proposals last summer.

When I first heard the governor denouncing the Democrats’ legislation last week, it sounded like a peace offering to the GOP. Then I quickly discarded the notion. He has never shown much sign of caring what Republican lawmakers think.

So maybe he was figuring that the package wasn’t worth the trouble, given its opposition from the political right. Groups are threatening to sue -- challenging the tax hikes’ passage on a simple majority vote, rather than two-thirds -- and to mount a ballot referendum repealing the levy increases.

California is one of the few states that require a two-thirds legislative vote for a tax increase. But Democrats devised an innovative way to get around the requirement and circumvent Republicans. That is, if it’s legal. A court would decide.

The plan involves raising some taxes -- on income, sales, oil production -- while eliminating state taxes on gasoline. The net result would be a dollar wash. The legislative counsel has opined that such revenue-neutral legislation needs only a majority vote.

Democrats would replace the lost gas tax revenue -- and then some -- by imposing a new per-gallon fee. A “fee” can be passed on a majority vote if the revenue is spent for a related purpose -- in this case transportation.

The tax-fee package, which includes withholding income taxes on payments to contractors, would raise $9.3 billion over the next 18 months. There would also be $7.3 billion in cuts to education, prisons, healthcare and benefits for the elderly poor and disabled. That’s on top of $11 billion in previous program cuts this year.

The state is facing a $41-billion deficit through June 30, 2010. Last week, it cut off funding for hundreds of construction projects in order to save enough cash to pay bills.

They’re desperate in the Capitol. But not desperate enough for any Republican to vote for the Democratic revenue measures. The GOP was outraged at the majority-vote ploy.

But if Schwarzenegger was, he didn’t show it. Asked at a news conference whether he thought the majority-vote passage violated the state Constitution, the governor replied: “I don’t get into those kinds of debates. . . . To me, what is important is that we raise the revenues that we need, because we need extra revenues.”

That was Thursday. The next day in Fresno, he contended that the Legislature had passed “illegal taxes.”

So who really knows what’s in his head?

Hopefully he’s just trying to squeeze Democrats. Then there’s hope for compromise before the state sinks so deeply into debt that it’s really broke, can’t pay bills and defaults on loans.

Here’s a little perspective: You could eliminate the salaries of every state worker under the governor’s control -- more than 200,000 -- and still not balance the budget. In fact, California ranks only 14th nationally in the ratio of state employees to population.

Democrats complain that they’re not sure what Schwarzenegger wants -- more precisely, what he’ll settle for. Bass says he’s “like a child telling Santa, ‘If you don’t bring every single item on my list, then stay out of my chimney.’ ”

That’s why they need to jaw with him face-to-face, preferably with aides hanging outside the room.

Schwarzenegger says he’s holding out for more spending cuts. But the main thing he seems to want is an “economic stimulus” package. His definition of that involves public-private partnerships in construction and softer environmental rules on projects. Democrats offered some of that, but it didn’t satisfy the governor.

He called the Democrats’ package “bogus.” And he accused them of trying to “punish the people” by raising their taxes -- a bit hypocritical since he has advocated twice as big a sales tax hike.

Despite the governor’s bluster, this has the look of a doable deal. Democrats just need to buck a little harder against their labor patrons and environmental constituencies.

As Steinberg said: “We are far too close to let this $18-billion opportunity slip.”

Both sides must decide it’s time to declare victory.

My guess is that Schwarzenegger is in a legacy-building mode with only two years left in office. He’s looking for something to take credit for, to bang his chest about.

Democrats should provide it. It’s their rare chance to raise taxes, er fees, on a majority vote.

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