To balance the budget, cut and tax

Memorial Day is the real start of summer. Never mind the summer solstice in three weeks. And summer in Sacramento, shamefully, means budget bickering and blather.

Gov. Arnold Schwarzenegger equates it to the kabuki, the classic Japanese song-and-dance drama.

I call it the Dance of Death. “Everybody dances around the fire. They throw stuff at us. We throw stuff at them. Everybody falls over dead, and we start all over again,” a senior legislative staffer, Phil Perry, once described it to me.

The basic “stuff” for slinging is now in place.

Democrats last week produced their separate plans in the Assembly and Senate for filling a $19-billion deficit hole projected for the fiscal year beginning July 1. A few days earlier, Schwarzenegger proposed his solution.

They’ve got the perennial problem surrounded.

Assembly Democrats offered mostly a long-term borrowing scheme.

Senate Democrats proposed several tax increases.

Schwarzenegger advocated taking a machete to the already tattered safety net of poor people.

At some point, they’ll all need to step into the center and compromise. But they must bring a few Republicans with them — at least four in the Assembly, two in the Senate — in order to ensure the two-thirds legislative vote unfortunately required for budget passage.

That will be the toughest part.

Republicans, as usual, are dug in on the far right — apparently afraid to stick their heads up, for either tax hikes or specific spending cuts.

For example, Schwarzenegger’s most controversial — and unrealistic — budget proposal is to eliminate the state’s welfare program, which serves 1.4 million Californians, two-thirds of them children.

The program is called CalWORKS because its aim is to transition welfare recipients into the working class. It’s doubtful many Republicans actually would vote to kill it.

“CalWORKS is a priority,” says Assemblyman Jim Nielsen (R-Gerber), the lead Republican on the Assembly Budget Committee.

Nielsen supports CalWORKS because it helps create “employability,” he says. “It may need some reforms, but I hope it can be salvaged.”

Eliminating the program would save only $1.2 billion in state money because it’s subsidized by federal dollars.

Well, I asked Nielsen, just what spending can be cut to fill the deficit hole without raising taxes?

He didn’t really answer. No Republican ever does, apparently feeling that since the GOP isn’t in power, it doesn’t have a duty to offer concrete solutions that could be unpopular.

But since the minority party does possess the power to block any legislation requiring a two-thirds vote — which is virtually any money bill — it should feel a responsibility to engage in realistic problem-solving.

Nielsen talks generally about scaling back state government. Fixing the budget and reining in regulation would encourage business growth and create jobs, thus generating more tax revenue, he contends, echoing conservative dogma.

But even if that worked, it could take years. Is it really possible to balance a budget this summer without raising taxes?

“Yes,” Nielsen says. “Maybe I’m an eternal and insufferable optimist.”

And the GOP budget guru, who in an earlier legislative incarnation was the Senate minority leader, concedes that “there could be a little bit of gimmickry” in such a budget.

Fact is, any objective analysis of California’s budget quagmire would conclude that the state can have an honestly balanced budget. Or it can have a budget that doesn’t include a tax increase. But it can’t have both.

The Assembly Democrats’ plan includes a new tax on oil production. That is, it would be new for California, but not for any other major oil producing state.

The Democratic thinking is that with the oil industry smearing itself in the Gulf of Mexico, the public — and therefore the Legislature — may be in the mood for an oil severance tax. But there’s no sign of it from Republican lawmakers or the governor.

The oil tax would help pay off a long-term loan backed by revenue from nickel deposits on recyclable bottles and cans. It’s all convoluted.

But in the end, $10 billion would be generated to avoid severe budget cuts, help local governments and schools, save public employment and create a few private jobs, plus lower student university fees.

The biggest problem: The plan would borrow lots of money over several years but spend it in only one. It’s a desperate plan, but not a sound one fiscally. Schwarzenegger dug a gargantuan hole by sponsoring a similar borrowing scheme six years ago.

“This doesn’t solve all the world’s problems, but it does solve two,” says Assembly Speaker John Pérez (D- Los Angeles). “It solves this year’s budget crisis and it stabilizes the economy.”

Without it, Pérez says, hundreds of thousands of workers — public and private — could be laid off. And for those who hold a lower regard for jobs created by government than for jobs created by the private sector, the Democrat points out:

“If I’m a shop owner and you come in to make a purchase, I don’t really care where you got the money.”

The Senate Democratic plan is much simpler and more fiscally sound. It would generate $5 billion by delaying corporate tax breaks, extending a temporary income tax hike scheduled to expire, raising the liquor tax and increasing the vehicle license fee.

Schwarzenegger has vowed not to sign any spending plan unless it’s accompanied by budget and pension reforms. Democrats will dicker.

Somewhere in the middle of all this there’s a deal. It probably consists of all of the above: cuts, gimmicks, borrowing and taxes.

The song-and-dance is sure to induce loud catcalls from the audience. For the performers’ sake, the curtain had better come down by summer’s end, Labor Day.

george.skelton@latimes.com