Foiling Sacramento’s Green Goblins

Critical changes to take to lawmakers, or the people.

George M. Passantino

George M. Passantino is director of government affairs for the Reason Foundation.

A scene in the blockbuster movie Spiderman is eerily similar to one now playing out in Sacramento. In the movie, Spiderman’s enemy, the Green Goblin, dangles Peter Parker’s true love off a bridge. In his other hand, he dangles a cable car full of children. Suggesting that Spiderman cannot save both, he demands that the hero choose which he will let die.

In essence, this is what some advocates for tax hikes are seeking to do to Governor-elect Schwarzenegger. Either break your pledge not to raise taxes or break your pledge to protect quality of life priorities. “We’ve already done all the easy stuff,” they argue. “Taxes are the only option. Choose.” These critics almost seem elated that state finances are so bad. But this ploy need not work. The Terminator can pull a Spiderman-style rescue and balance the budget without raising taxes or gutting vital services. Here’s how.

Earlier this year, Reason Foundation co-published a comprehensive analysis of state spending called the Citizens’ Budget, which demonstrated how California could protect quality of life priorities without having to undermine the state’s vulnerable economy with new taxes. As it ended up, Sacramento disregarded most of the recommendations and went on a borrowing spree that is now in legal jeopardy. Many experts believe that the courts may strike down $13 billion in borrowing for violating constitutional requirements that it receive a vote of the people and that the bonds not be used to finance ongoing spending (as opposed to particular infrastructure projects, such as building schools or freeways). Hence, what once appeared to be an $8 billion hole for the new governor to fill next summer could quickly grow to more than $20 billion.

With fiscal crisis as his justification, Schwarzenegger should press forward with an ambitious reform agenda designed to solve the state’s spending problems once and for all. Here are a few of the key opportunities.

PERFORMANCE-BASED REDUCTIONS

The Citizens’ Budget (which can be read at: http:// www.rppi.org/cacitizensbudget.html) identified more than $6 billion in savings in programs with poor performance records, questionable efficiency, or that simply are not priorities — many of the suggestions for reductions coming from the government’s own watchdog agencies such as the Legislative Analysts Office. While a few of the recommendations were adopted, most were not. Instead, lawmakers relied upon gimmicks (for instance, counting the steep car tax hike as a spending “cut”) to deal with the record $30-plus billion deficit. In its budget post-mortem, the Legislative Analysts Office pointed out that the spending plan, if you eliminate the gimmicks, did not reduce real spending levels. Some tough love.

It is encouraging that Governor-elect Schwarzenegger’s budget guru, Donna Arduin, is conducting a comprehensive audit of state spending. She should dust off the reports from Reason, the Legislative Analysts Office, and the Little Hoover Commission that identify billions of dollars in poor performing programs.

COMPETITION

  Public services should be subject to regular competition between government providers, nonprofits, and private businesses. If a state worker mows the grass in front of a state building, we should find out if a local landscaping company can provide the service at a lower cost. Every time we go to the department store we see how competition improves quality and reduces costs — we call it shopping around. Importantly, research shows that the state can save on average 30 percent by shopping around. Even when public agencies win these competitions, as they often do, the taxpayer still saves. The Citizens’ Budget identified nearly $9 billion in savings available through this sort of competition.

RENEGOTIATE LABOR CONTRACTS

  This year’s budget called for $1.1 billion in personnel savings by contract renegotiations or lay offs. This should be doable — even Mayors Jerry Brown and Willie Brown managed to renegotiate labor contracts to conform to tougher economic times. If they can do it, so can the state. But somehow, Governor Davis achieved little in renegotiations with unions. Governor- elect Schwarzenegger should be sure that the savings targets are met. Fortunately, he has pledged to do this in his “100-day Plan.” The $1.1 billion savings, by the way, is mandated by law: if it doesn’t come through renegotiation, it will have to be achieved through layoffs.

REORGANIZE STATE GOVERNMENT

  California has two environment agencies, the Environmental Protection Agency and the Resources Agency. We also have two tax collecting bodies, the Franchise Tax Board and the Board of Equalization. We can save almost $900 million simply by reorganizing state government and reducing duplicate, overlapping, or unneeded services such as these. By combining similar departments and programs such as the EPA with the Resources Agency, the taxpayers save on overhead costs and service levels improve through a refocused mission that is strategy-based.

SHIFT TO A TWO-YEAR BUDGET

  Twenty-three states utilize a two-year budget and it makes sense for California to join them. Under a two- year budget, the Legislature should devote the first year of session to producing the budget and conducting thorough reviews of state spending. Dramatic reforms to state programs take time — often more than a year — and a two-year budget allows enough time for reforms to occur and savings to be achieved, encouraging budget writers to consider reform as a way to save money. Finally, a two-year budget significantly reduces the pain of reforming state government by spreading reductions over two years. Concerns that two-year budgeting would lead to even more reliance on wildly inaccurate revenue projections can be addressed by incorporating “triggers” into the budget, pulled if actual revenues fall short of projections, that would force overall state spending to ratchet down automatically. This would require a constitutional change and should be presented to the public as soon as possible.

Of course, some will say that these ideas will never get through the Legislature. Many of those skeptics probably also suggested that the recall would never qualify or pass. Yes, Sacramento presents some very real political challenges. I remain optimistic, however, because the problem is so significant and because few legitimate options are available that don’t include fundamental reform. Moreover, Schwarzenegger can connect with the public unlike others before him. If Schwarzenegger uses his Olympian appeal to go straight to the people, many seemingly politically impossible ideas will become realistic.

Like Spiderman, Schwarzenegger does not need to choose between two disastrous outcomes. We can balance the budget without raising taxes or gutting quality of life. The Green Goblins in Sacramento can be foiled.