The state’s dysfunction isn’t all his fault, but it got worse during his time in office because of his failure to come to grips with the real issues of state government.

By Michael Hiltzik
December 10, 2010, 8:36 p.m.

The day he took office, Gov. Arnold Schwarzenegger commanded popularity enough to persuade California’s voters to swallow the harshest fiscal medicine.

The tragedy of his governorship is that he never used it.

The roots of the state’s dysfunction were well known in Sacramento in 2003, when Schwarzenegger took office, and still are today: It’s too easy to enact spending programs by ballot initiative, too hard to get the required two-thirds vote of the Legislature to pass a budget and impossible to keep talented legislators around when they’re rapidly turfed out by term limits.

The tax structure bequeathed us by 1978’s Proposition 13 is lunacy; it places too much emphasis on the personal income tax, which frustrates the wealthy and the entrepreneurial class, and on the sales tax, which hammers the working class.

The school financing system (also an offspring of Proposition 13) is even more nuts. It hamstrings local administrators by making them beholden to nostrums issued from Sacramento.

Everybody feels shortchanged in this state — rich and poor, employer and employee, student and teacher — and not without reason. This is the crisis Schwarzenegger was elected to solve, and he never laid a finger on it.

Why? Because these fundamental issues were not on Schwarzenegger’s radar screen.

Schwarzenegger had some good qualities as governor and some sound instincts. Very early on he heeded the call to reform the worker’s compensation system, though he probably didn’t go far enough. His environmental initiatives met the most progressive standards, and we owe him gratitude for helping to fight off the mendacious Proposition 24 campaign to roll those initiatives back in November.

He understood the need for healthcare reform, even if he couldn’t get it done. For the most part he didn’t let braying right-wing Republicans (about all that’s left of the GOP in California) move him off socially moderate positions on gay rights and similar issues.

Yet on the central issue of his tenure, fiscal reform, Schwarzenegger proved to be an action star with feet of clay.

Why is that? Perhaps the reason is that the state’s persistent budget crisis is deeply interwoven with the flaws in its government structure, and untangling that mess requires both hard labor and imagination.

One might argue that Schwarzenegger’s fundamental flaw as governor was his consistent lack of imagination. He didn’t seem to see the irony in his coasting into office by attacking Gray Davis for borrowing to close a budget gap, then submitting an alternative budget that closed the deficit with a bond issue.

He could proclaim himself the sworn enemy of “special interests,” yet deliver to the California Chamber of Commerce 100% of its legislative wish list in 2004.

It’s not unusual for high-profile politicians to bask in their own self-esteem. But Schwarzenegger took this habit to extremes. That’s unsurprising, since TV hosts and the out-of-state press treated him as a movie star even while he was failing at the mundane job of running a statehouse.

Once the TV cameras were packed up, the lights went dim in Chris Matthews’ set and the out-of-state reporters filed their stories about motorcycle trips with the Governator, the hard work remained. To be an effective governor you have to suffer fools gladly, and absorb the sufferance of adversaries who think the fool is you. You have to spend half your life in the weeds of policy wonkdom and like it.

Signs emerged even during his first campaign that Schwarzenegger wouldn’t be the kind of governor who took bold policy steps.

Shortly before the recall election, his handpicked economic guru, Warren Buffett, publicly made the point that Proposition 13 created tax inequities that cost the state money and sapped public confidence.

The Schwarzenegger juggernaut had already built up such a head of steam that it’s doubtful it could have been derailed had he agreed that some aspects of Proposition 13 needed to be on the table. Instead, he publicly slapped Buffett down.

Plainly he never imagined how briefly the window of public adoration would stay open for him. His tendency to personalize policy disputes and his preference for conventional solutions helped slam it shut.

In his second year in office Schwarzenegger concocted for the November 2005 ballot a slate of four ballot initiatives ostensibly aimed at promoting fiscal responsibility. But only one dealt with the state budget process — a perfectly conventional mandated spending ceiling — while two were aimed vindictively at schoolteachers and public employee unions. All were defeated.

It was his worst rebuff until May 2009, when he put five fiscal initiatives on the ballot, including a couple of impenetrable tax measures. They all lost by huge margins. (A sixth punitive measure aimed at the state Legislature passed.)

Schwarzenegger’s very first gubernatorial act, rescinding a rise in the car tax, was his greatest failure of imagination, instantly blowing a nearly $4-billion annual hole in his budget.

Schwarzenegger had telegraphed this step during his campaign by dropping a wrecking ball on an Oldsmobile spray-painted with the words “Davis Car Tax.” Yet in following through, he made himself Exhibit A for the adage, which I’ve just coined, that politicians always become prisoners of their own panders. (cf. immigration and Whitman, Meg.)

The consequent revenue gap poisoned Schwarzenegger’s entire administration. He could never fill it, because his imagination hadn’t registered the basic truism that in California it’s very easy to take a wrecking ball to an old tax but almost impossible to enact a new one. Of the state’s currently estimated budget gap of more than $25 billion, 100% would have been covered by an unwrecked car tax.

That’s assuming that spending didn’t rise and suck up the revenue. The mantra of “we don’t have a revenue problem, we have a spending problem” was an essential part of the Schwarzenegger shtick. If only he’d listened to himself talk.

Schwarzenegger was never exactly Mr. Austerity. On the November 2004 ballot he endorsed two bond issues that added nearly $4 billon to the state’s capital debt, not including interest. One was the stem cell bond, which can be spent with virtually no oversight from Sacramento; why would a governor be in favor of that?

His first foray into the political arena was a campaign to enact a 2002 ballot initiative creating an after-school program that can’t be touched by the Legislature and that now costs $550 million a year. Did he imagine this might place extra strain on a state budget struggling to balance priorities in K-12 education? Not then, and not now.

So now the Schwarzenegger administration, which began in a burst of naked opportunism seven years ago, ends with a sour joke.

The opportunism was reflected in Schwarzenegger’s perception that in the gubernatorial recall free-for-all of 2003, he might win by positioning himself as a giant candidate towering over 134 pygmies.

The sour joke is the governor’s final proposal to balance the state budget through program cuts, submitted last week to a special “who cares” session of a state Legislature already looking ahead to the Brown era.

If there is a significant “savings” proposed in this plan that doesn’t involve cutting benefits to families already living close to the poverty line, I can’t find it. One struggles to understand why Schwarzenegger even bothered to go through the exercise — does he really want one of the final published documents of his regime to be a blueprint for cuts in grants to the disabled and elderly and the elimination of child-care programs?

Yet that’s what makes appraising the departing administration such a challenge. It’s hard to think of Schwarzenegger as a man who thinks that increasing the economic insecurity of the poorest Californians is a good thing. He just can’t think of a way around it, given that as much as 80% of the state budget isn’t amenable to gubernatorial or legislative adjustment. The only give left is in the money spent on the poor and the politically disenfranchised, so when a governor decides to go with the flow, guess who gets whacked.

Nobody gets the last laugh in this comedy. Schwarzenegger leaves office with a popularity rating down in the Gray Davis subbasement. The state’s middle class and working class feel squeezed as never before. Nor does the business community have much to crow about. California is still ranked near the bottom of all states on the business-friendly list; I certainly haven’t detected a decline in complaints about intrusive state regulations. (Maybe business owners are relieved it isn’t worse.)

Schwarzenegger no doubt will seek praise for keeping tax increases to a minimum during his tenure. But the last seven years have seen many stealth tax hikes, such as steep increases in tuition and fees at UC and Cal State, and squeezes on local and school budgets. Make no mistake, it’s the middle class who pays most of these.

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