This story was reported for San Diego News Network on May 13, 2009.
If Californians reject six ballot initiatives on May 19, the state will resort to “Plan B” to recoup the $6 billion the propositions would have saved, Gov. Arnold Schwarzenegger said Monday.
Schwarzenegger’s Plan B includes releasing 40,000 inmates from prison, laying off 51,000 teachers and suspending Proposition 1A of 2004, which stopped the state government from borrowing money from local municipalities among other protections.
“If it doesn’t pass, if the initiatives don’t pass, then here is the other scenario with the more severe cuts, which is the $6 billion hole that we are talking about,” Schwarzenegger said. “And, of course, that will have a tremendous effect. I know that the result of the propositions failing on May 19 will mean $6 billion in additional severe cuts.”
The governor shared his second plan after predictions showed five of the six propositions failing. In fact, Proposition 1F, which freezes salaries of state legislators during a deficit year, is the only initiative ahead in the polls.
Among the least favored cuts, critics said, was the governor’s threat to suspend Proposition 1A, which would allow the state government to mandate loans from local governments and return the borrowed money within three years. If the suspension of Proposition 1A is approved by two-thirds of the legislature, the state would hope to borrow up to $2 billion for fiscal year 2009-2010 or up to 8 percent of property tax revenue.
His Plan B approach comes at a time when several San Diego County cities are facing their own expected deficits for next fiscal year : San Diego at $60 million, Chula Vista at $20 million, Escondido at $6.7 million, National City at $3 million and Poway at $2 million. The deficits are causing distress among local leaders who are already making their own budget cuts.
“It is not rational to ask local governments to contribute their revenue to the state government,” said San Diego Mayor Jerry Sanders, whose city may have to contribute nearly $20 million to the state.
In fact, Chula Vista Mayor Cheryl Cox said the city council adopted a resolution on Tuesday stating the city would refuse the mandate if enacted.
“We adopted a resolution that the California Department of Finance would not be allowed to borrow or seize our local funds,” Cox said. “We strongly and unconditionally oppose to this option.”
But local cities aren’t the only California municipalities facing deficits. Chris McKenzie, executive director of the League of California Cities, said the majority of the state’s cities are treading on the same troubled water.
“The general reaction is that we’re in the same fiscal stress that the state government is and we’re already making very serious budget cuts,” McKenzie said. “When you have cities laying off police officers and firefighters, or closing libraries and parks, that’s saying something – and the cuts are just going to get deeper and deeper.”
Despite the fiscal holes that many cities are finding themselves in, McKenzie said local governments are contributing nearly $900 million in tax revenues to the state government. And, if the state were to borrow $2 billion with a promise to repay in three years, it just isn’t rational, he said.
“We can’t even see how the state can repay the loan in three years if they were to borrow it,” McKenzie said.
Assemblymember Lori Saldaña (D-San Diego) said Democratic state legislators participated in two meetings on Wednesday and although she cannot release the exact information discussed because of internal issues – she said the state is looking into various scenarios.
She also said the Plan B approach won’t just take cuts at local levels — but all.
“We’ve been working here [Sacramento] for weeks on different scenarios and whatever happens on Tuesday, Wednesday’s actions will be taken quickly by Legislators,” she said.
She said those looking upon California’s fiscal mess shouldn’t correlate it as a result of bad spending on behalf of the state legislators but rather as a result of the nationwide crisis.
“This is a reflection of a national meltdown,” Saldaña said. “California represents 12 percent of the U.S. population, so when the economy as a whole slows down, we slow down before the rest of the country.”
In addition, the assemblymember will meet with Vice President Joe Biden on Thursday and plans to ask for assistance from the federal government.
While California Sen. Christine Kehoe, who has blogged about her support of the propositions, said she doesn’t completely understand Schwarzenegger’s Plan B. She also said she imagines there will be tension between local governments and the state but she “believes every source of revenue will need to be scoured to keep all levels of government functioning.”
“I don’t think it’s going to be pleasant,” she said.
-Fire Stations: 10 percent reduction in CAL Fire’s budget, closing 11 conservation camps and 20 fire stations, staffing each engine with three firefighters instead of four
-Prisons: Releasing 40,000 inmates (who are “non-serious, nonviolent, non-sex offenders”) and releasing all undocumented immigrant prisoners
-Education: $3.6 billion reduction to education funding, laying off 51,000 teachers, shutting down all public schools for 18.5 days, increasing class sizes by 17 percent, laying off 90,000 support staff
-Local government: Borrowing $2 billion for fiscal year 2009-2010; could result in “reductions in locally funded services such as police officers and fire stations”
-Medi-Cal: Possible cuts, but no mention of exact figures
However, despite the fact that the state is facing a $42 billion deficit with the possibility of $6 billion being saved from the passage of the propositions, the governor’s Plan B is a short-term solution to a long-term problem, said San Diego State University professor Brian Adams.
“We shouldn’t look at this crisis as a result of the current situation, as California has been in a fiscal mess for years,” Adams said. “Politicians have spoken about creating long-term solutions, but politically it’s too hard to do.”
Adams said the reason the state often finds itself in unimaginable deficits is because of our heavy reliance on income and sales tax, which too often fluctuate. In addition, he said if Plan B is enacted with the state taking about 8 percent of property tax revenue from local governments, the state may find a lot less than $2 billion coming in.
“Overall, property taxes are going down and will continue to go down for quite some time,” Adams said. “The state government may, in fact, not get what they’re hoping for.”
So far, Plan B has only been discussed within the governor’s office and the state’s Department of Finance. Schwarzenegger said both scenarios will be presented in the May Revises on Thursday.
Until then, Sanders said San Diego will continue to look ahead.
“The city continues to look for ways to cut its budget, not only to address potential impacts coming should the propositions fail, but as part of our ongoing process of dealing with current economic conditions, improving the efficiency of our operations and reducing overall expenses,” he said.
But, Adams said the state’s fiscal situation is in a deeper hole than the propositions and Plan B can solve.
“In fact, it’s so bad, the governor may have to go to Plan B anyway,” Adams said.
Hoa Quach is the political editor for the San Diego News Network.