In recent years California has been the modern-day poster child for Abraham Lincoln’s dictum that a “house divided against itself cannot stand.” A few years ago partisan brinksmanship brought the state close to insolvency. California’s bond rating declined to near junk status, and cashflow was so weak that the state gave out IOUs.
A big reason why is that California’s budget required approval by two-thirds of the Legislature. This set the stage for a yearly ritual of knock-down, drag-out fights between the Democrats, who have consistently controlled both houses of the Legislature, and a relatively small but unified Republican minority. In 2010 the budget’s passage was delayed by a record 100 days.
The stalemate only began to ease after voters passed a proposition in 2010 that allowed budgets to be approved by majority vote. It also didn’t hurt that the Democrats won back the governorship. But much like Washington, two-thirds approval is needed to pass many fee, levy and tax increases. Legislative negotiations have once again bogged down on how to close another big budget deficit, so Gov. Jerry Brown is attempting to go straight to the voters with a tax-increase proposal.
Washington sliding down the same slippery slope?
In recent years Washington has looked like a model of good government compared to California. Bond ratings have been high, in part because Democrats and Republicans have worked together reasonably well, e.g., they were able to strike a deal on the budget last year.
But now the wheels look like they are in danger of coming off. In late January two credit agencies lowered their outlook for Washington. This came on the heels of projections from the Office of Financial Management that the state’s deficit could reach $2.85 billion by the 2017 fiscal year.
Austin Jenkins notes in his blog that these projections assume “revenues return to historic growth levels” and the Legislature restores funding for K-12-related initiatives 728 and 732, which would add a projected $1.86 billion to the budget in 2017.
An AP wire story sums up Moody’s concerns about what looks like a structural deficit: “(T)he state’s reliance on a sales tax has made it challenging during a recession that has impacted consumer confidence. The agency cited other challenges, including reliance on the cyclical aerospace industry, above-average debt ratios and frequent voter initiatives that add to budget challenges.”
Big election year unlikely time to resolve structural deficit
Jim Kastama, one of three “Roadkill Caucus” Democrats who voted for the Republican Senate budget, has argued that the OFM projections are too optimistic. This has undergirded his call for more aggressive budget cuts and policy reforms than supported by Democratic legislative leaders.
In an opinion piece posted Sunday in The News Tribune, Kastama and Senate Republican Joe Zarelli attempt to turn public sentiment in favor of their budget coup by wrapping themselves in the flag of fiscal responsibility. But beneath the political posturing resides a complex battle between myriad stakeholder groups, each trying to protect their funding — or tax loopholes.
Truth be told, neither party is immune to budgetary gimmicks that make it harder to resolve the state’s structural deficit. That’s because it will arguably require a combination of structural and tax reforms unpalatable to major stakeholders in both parties. Politically, that’s asking a lot — perhaps too much — for such a high-stakes election year.
Most importantly, despite the unusually public brinksmanship and high-octane rhetoric, most of the major players would likely be hurt if budget negotiations drag on too long. For example, if Kastama has a chance to become Secretary of State, he arguably needs to declare a convincing legislative victory and get on the campaign trail fairly soon. But if he overreaches, his gambit could backfire with voters this fall.
If this is Kastama’s calculation, then what is on his wish list that could plausibly be pushed through the Democratic-controlled House within the next month? A posting yesterday on his Facebook page doesn’t provide indications.
However, prior to the coup Erik Smith of the Washington State Wire noted that the issues Road Kill Democrats have championed this session include consolidation of K-12 health benefits, streamlining stormwater regulations, education-reform measures, and a balanced-budget amendment. The latter was prominently discussed in the above-mentioned Kastama-Zarelli opinion piece.
Republicans could lose for winning
The main message Republicans are pressing in the 2012 election cycle is that the status quo needs to change. That’s an attack against mainstream Democrats, who have controlled the Legislature and the governorship long enough to have a big bulls eye painted on their backs.
The attack may work well enough to elect the first Republican governor since 1980. However, the Republicans’ staunch resistance to tax reform could come back and bite them if gubernatorial candidate Rob McKenna is serious about his call for pumping up education funding. That could exacerbate the state’s structural deficit even after further cuts to the rest of state government.
Something is going to have to give. McKenna would do well to not beat up too badly on Democratic legislative leaders over the current budget impasse. A Gov. McKenna may very well need their votes to overcome conservative Republican opposition to all-but-inevitable tax increases.
Meanwhile, if Kastama succeeds in getting a so-called balanced budget proposal passed, McKenna will have even fewer policy options than the Democrats do now in responding to fiscal contingencies such as the state’s overly volatile tax structure.
If McKenna isn’t careful he could very well experience a political trajectory similar to that of former California Gov. Arnold Schwarzenegger, whose name is now associated with a spectacular failure of governance.