California voters strike down tax measures - Defeat of Governor Arnold Schwarzenegger’s bid to curb deficit

California voters strike down tax measures - Defeat of Governor Arnold Schwarzenegger’s bid to curb deficit
By Matthew Garrahan in Los Angeles
Copyright The Financial Times Limited 2009
Published: May 19 2009 20:19 | Last updated: May 20 2009 07:42
http://www.ft.com/cms/s/0/352d96b2-44a8-11de-82d6-00144feabdc0.html


California voters on Tuesday rejected a series of special ballot measures aimed at curbing the state’s widening budget deficit, in a blow to Arnold Schwarzenegger, the state’s governor.

“I respect the will of the people who are frustrated with the dysfunction in our budget system,” Mr Schwarzenegger said in a statement from Washington, conceding defeat. “In order to prevent a fiscal disaster, Democrats and Republicans must collaborate and work together to address this shortfall.”

Anticipating a setback, Mr Schwarzenegger spent Tuesday in Washington, where Barack Obama unveiled a set of new auto emissions standards closely modeled on standards first adopted by California.

California would be the world’s eighth-largest economy if it were a separate country, but the state has been rocked by the recession and a record budget deficit. Mr Schwarzenegger had been urging voters to support new revenue-raising measures that would limit the need for deep cuts in education and emergency services, and avoid the budget deficit expanding to $21bn from $15bn.

The election defeat increases the likelihood that California will have to slash spending on essential public services. Thousands of teaching jobs are under threat, while the state is also looking at cutting the number of fire fighters it employs.

Time is running out before the state becomes unable to meet its short term spending obligations, such as paying public sector workers. Mr Schwarzenegger is set to return to Sacramento and begin a new round of talks with legislators in the state assembly with the aim of agreeing a new budget.

The three major credit rating companies, citing the magnitude of California’s deficits, reduced the grades on around $60 billion of bonds in February and March to the lowest rating of any US state.

In recent months Mr Schwarzenegger has become the target of anti-tax demonstrations. John Kobylt and Ken Chiampou, popular radio presenters, have emerged as some of the governor’s most outspoken critics. They supported him when he swept to power but turned against him when he tried to address the state’s dire finances.

“If you’ve seen the polls, people are really, really angry,” said Mr Chiampou at a recent Orange County rally, where life-sized effigies of Mr Schwarzenegger were ripped apart. “We’re in a recession. Who in the world would talk about raising taxes?”

Tuesday’s election was called to ratify a budget compromise agreed in February following a marathon set of negotiations between Mr Schwarzenegger and representatives in the California assembly.

Even if all the ballot measures had passed, the state would still face a budget deficit of more than $15bn.

Mark Baldassare, president of the Public Policy Institute of California, said the budget plan crafted by Mr Schwarzenegger and the state assembly was “complex and controversial” and “difficult for the voters to comprehend and support”.

The plan was “at best a partial solution to the state’s fiscal problems”, he added.

Chris Lehane, a Democratic party strategist and former press adviser to Al Gore, said the special election “really underscores that California state government is so structurally flawed that it is ungovernable”.

The state government is continually deadlocked because legislators in need a two thirds majority to raise new taxes. “There is no clearer sign of how these structural issues…have hurt California then by looking at the state’s public education system, which has gone from first to worst in a generation,” he added.