Schwarzenegger Recovery Plan on March Ballot

Published January 1, 2004

On December 12, Governor Arnold Schwarzenegger signed legislation, passed by the state senate earlier that day, putting his economic recovery plan before the people of California in a March 2004 ballot referendum.

“In my swearing-in speech,” Schwarzenegger explained in a prepared statement, “I called upon the legislators to put aside ‘politics as usual’ and deliver a miracle of Sacramento for the people. I am pleased and grateful they were able to do that and pass my California Recovery Plan. Our plan includes a balanced budget requirement to prevent our state from ever facing such a disastrous situation again. I urge the people to join us in putting California on the road to recovery by voting for our plan on the March ballot.”

Schwarzenegger’s plan must be approved by the state’s voters because it includes an amendment to the state constitution.

“The budget agreement that [just] passed the Assembly is an important step in the right direction for California,” said Leon E. Panetta, former California Congressman and White House Chief of Staff under President Bill Clinton.

“Make no mistake,” Panetta continued, “there are many tough decisions that remain to be made by both the governor and the legislature to restore fiscal discipline to this state. But the first challenge is for both sides to show that they are willing to work together to govern this state rather than engage in politics as usual. This agreement should give all of us in California greater hope that the difficult challenges that remain ahead can be resolved by leadership instead of crisis.”

The governor’s finance director, Donna Arduin, described the fiscal challenges facing California. “For the past five years, California government has spent $23 billion more than it has taken in. Over the past five years, while revenues have increased by 25 percent, state expenditures have risen by 43 percent. If government had simply spent at the same rate that California’s economy has grown, the state’s budget would be balanced today.”

Recovery Plan

According to Arduin, the recovery plan includes:

  • Constitutional spending limit. For 2004-05, expenditures will not be permitted to exceed revenues. For the 2005-06 fiscal year, spending growth over the preceding year will match inflation and population growth. The measure will also establish a Revenue Stabilization Fund, which will receive any general fund revenue that comes in above the spending limit. This ‘rainy day’ fund could be used–with a two-thirds vote of the legislature–only for repaying deficit bonds, tax rebates, emergencies declared by the governor, and transfers to the general fund when revenues fall below the spending limit in the future.
  • General obligation bond issue, which would be used to refinance $15 billion of the $25 billion in debt that has already been incurred.
  • Spending reductions. Estimates on the size of the budget shortfall for the current fiscal year range between $2.2 billion and $4.3 billion. The governor is asking the legislature to eliminate nearly $2 billion of the projected shortfall immediately by cutting spending.

Arduin was quoted in early December in the Wall Street Journal saying, “We have a list of proposals to start reducing spending now. It includes 38 specific actions that cover a range of program areas, including transportation, resources, health and human services, and education. Together, these total $1.9 billion in budget savings in the current and next [2004] year.

“We have a realistic assessment of the state’s fiscal picture,” noted Arduin, “and a comprehensive plan to begin to fix fiscal problems that have grown in the past five years. No one is under illusions about how difficult this task will be. But the alternative–failing to take action–is simply not an option.”

John Skorburg is managing editor of Budget & Tax News. His email address is [email protected].