What Should Arnold Do?

Published November 1, 2003

California’s budget crisis dominated the recall campaign, and Gov. Schwarzenegger has promised to deal with the budget before turning to any other issues. A bipartisan report published by Reason Foundation and Performance Institute presents seven reforms and calls for the creation of a bipartisan commission that could be used by Schwarzenegger to implement an economic reform plan immediately. He has already endorsed most elements of the plan, and three of its authors are on his transition team.

“State government budgets are no different than our family budgets; there are basic guiding principles that keep you from going broke,” said Matt Fong, former California State Treasurer and coauthor of the plan. “Our Roadmap to Reform offers some simple yet powerful principles that our state leaders need to accept, adopt, and apply–or we’ll face our bond ratings dropping to junk bond status and even worse fiscal times ahead.”

Under the plan, the “Big Five” in Sacramento (the governor and the majority and minority leaders of both legislative chambers) would each appoint two members to a 10-member commission. Then, just 60 days after its creation, the commission would offer a specific 180-day action plan featuring changes to the fiscal practices of California government. The commission, made up of business, academic, and political leaders, could make decisions the legislature has been reluctant to and would function similarly to the federal Base Realignment and Closure Commission, which made politically unpopular decisions regarding the closure of military bases in the early 1990s.

By committing to such a vehicle, the plan’s authors said at the time, Schwarzenegger would be able to hit the ground running and make the necessary reforms to bring the budget into balance and restore the economic vitality of the state. The Reason Foundation-Performance Institute plan, “A Roadmap to Reform,” recommends seven specific reforms:

  • Adopt a biennial budget with a bankruptcy-like restructuring plan. Currently 23 states use a two-year budget because it improves oversight and limits the accounting gimmicks that have plagued California.
  • Adopt a constitutional spending limit and revenue limit. A spending limit similar to the Gann Spending Limit combined with a revenue limit on tax collection would have largely prevented the present fiscal crisis. The plan also recommends a reserve, or rainy day fund, to offset dips in the economy.
  • Overhaul the California tax system. The state’s tax system forces some localities to rely on the car tax for up to three-fourths of their revenues; others are dependent upon sales taxes. Re-examining sales taxes, personal income taxes, and car and property taxes in order to construct a less-volatile system is vital for economic investment and long-term growth.
  • Create the most jobs-friendly state in the nation, starting with workers’ compensation reforms.
  • Enact performance-based reforms in state programs. The state has multiple agencies providing duplicate services. These departments should be consolidated and work such as information technology, facility maintenance, purchasing, personnel management, financial management, and administrative support should be centralized, with single offices serving all state programs.
  • Control personnel costs and empower state employees to improve performance. California will spend more than $22 billion in salaries, wages, and benefits this year. A 10 percent savings can be achieved by eliminating vacant positions, renegotiating egregious raises, and re-assigning personnel.
  • Evaluate and improve efficiency through competition and procurement reforms.

Joining Performance Institute and Reason Foundation budget experts Carl DeMaio and George Passantino as authors of the plan were Bill Baker (R), former member of the California State Assembly and U.S. House of Representatives; Kathleen Connell (D), former California State Controller; Matt Fong (R), former California State Treasurer; Bill Jones (R), former California Secretary of State; and Lucy Killea (I), former member of the California State Assembly and State Senate.

Reason Foundation is a nonprofit think tank based in Los Angeles. Performance Institute is a private think tank based in San Diego.

Chris Mitchell is head of media relations for Reason Foundation. He can be reached at 800/582-2245 ext. 3037.

For more information …

The complete Reason Foundation-Performance Institute white paper, A Roadmap to Reform, can be found online at http://www.rppi.org/roadmap.pdf.