Thursday, 01/10/2008 Print Version | Email / Share
Governor Proposes Budget, Declares Fiscal Emergency, Calls Special Session
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GOVERNOR: Thank you very much. Thank you and good morning, everybody. Today I'm presenting the 2008-2009 budget to the Legislature. But before I do that, I just want to say thank you to Mike Genest and the entire Department of Finance for their extraordinary work; for working late at night and for working through weekends to get this done. So, a big hand to all of them. (Applause)
I also want to thank my Chief of Staff, Susan Kennedy, who is sitting right here. Thank you very much for your great, great work for the administration and also on this budget. A big hand also to her. Thank you. (Applause)
And I want to thank all the Cabinet Secretaries, because they had to work also very hard with Mike Genest and the Finance Department to really make those reductions that we have asked them for, so we want to thank them also for their great, great work. And they will be available later on for a question and answer session if you have any questions for them.
Anyway, as you know, we are facing a very tough situation. But with tough times come historic opportunities, and I'm convinced that the Legislature will help in order to take this temporary problem that we have and turn it into a permanent solution, a permanent victory for the people of California, by joining me to enact true budget reform. We simply cannot have a budget system where revenues and spending are not tied together. We must rise to the challenge and fix California's budget system once and for all.
The housing problem that is currently slowing the economy is
well known, and we can't say for sure when these problems will be shaken off so
that our vibrant growth can continue.
But right now, mainly because of the housing slump and the subprime
mortgage crisis, state revenues are flat.
As a matter of fact, we are now 4.6 billion dollars short of the
projected revenues for 2007-2008. The
result is that we have a 3.3 billion dollar hole in the current budget, which
is projected to grow to 14.5 billion dollars by the end of the next fiscal
year, which is June of 2009, if we don't do anything about it.
But I want everyone to understand that the economy is not the villain here. The economy contributes a little bit to the problem, but the villain is the system itself, the budget system. On the spending side, the action is automatic. Formulas, population and caseloads just drive the costs up without us doing absolutely anything. But to control those costs takes a lot of work.
So to close this budget gap I'm proposing two actions. First, my new budget will reduce almost every state program by 10 percent next year, or as close as possible. And in the Fiscal Emergency Special Session of the Legislature I'm calling today I'm proposing to start many of those cuts this fiscal year, 2007-2008. That includes eliminating cost-of-living adjustments and reducing a portion of the appropriation to schools that are above the Proposition 98 Guarantee.
Second, I'm using the authority given to me under Propositions 57 and 58 to both suspend next year's prepayments of the Economic Recovery Bonds and to sell the remaining bonds to rebuild this year's reserve.
Now, some might say that it sounds easy to just cut across the board by 10 percent, but let me tell you, it is very difficult. I can see every single person hurt by those cuts, and I understand how difficult they will be for many, many people. But the old way of balancing the budget by just grabbing money anywhere we can -- if it is from transportation or from local government or pension plans -- that time is over. As I said in my State of the State speech, we took those options off the table because they never solved anything in the first place; they just created more problems. What we have to do is be fiscally responsible and to spend only the money that we have. In other words, we have to end what the Wall Street Journal called so eloquently, "Sacramento's culture of overspending."
Now, of course, when we talk about cuts we have to be smart on how we go about it. I could not, for example, follow the conventional budget wisdom to reduce Proposition 98 this year down to the minimum Guarantee level, cutting the full 1.4 billion dollars that our schools are over-appropriated in the middle of the year would have been devastating. We must protect our children. Nor do I want to cut whole programs that so many people rely on. 10 percent across the board is already tough, but it at least spreads the pain evenly and equally, and it protects vital services.
I know that some people say that we should just raise taxes in order to fill the gap, but it would be wrong to raise taxes on people to cover Sacramento's overspending. And also, since we have not yet fixed our budget system, especially we have not yet first done everything we can in order to stop the spending.
Now, that brings me to the last part of what I want to talk about here today, and that is true budget reform. The budget underpins everything that we do as a state. It has to be solid and it has to be responsible. A state as great as ours should not approach every budget season as if we were on a roller-coaster thrill ride where people have to hold on for dear life. We cannot give schools all the money and then just take it away and steal it from health care or transportation projects. We cannot have the same fights year after year, if we should increase taxes or if we should cut spending.
We have to control the budget, because right now the budget is controlling us. Right now, we are spending, for instance, 400 to 600 million dollars a month more than we are taking in, and we can do nothing about it. I think it is total madness. No business or family could stay afloat with that kind of budgeting. Our budget system needs to be fixed, plain and simple.
And as you remember, I have proposed this, of course, to fix the budget, several times before. As a matter of fact, right after I came into office we proposed that, and then again in 2005. In both cases they did not pass. So now I will try again. And I want to promise you that I will do everything I can to be as inclusive as possible and as open-minded as possible. We want to work with both of the parties to resolve this problem once and for all, because we have two choices; more of the same dysfunction and paralysis, or real budget reform.
I call for real budget reform. The constitutional amendment that I am proposing is modeled after the budget process used in Arkansas for the last 60 years.
And on top of that, we will also put in place, when revenues grow Sacramento will not be able to spend all of that money. We would instead set it aside in a rainy day fund, or a Revenue Stabilization Fund, as they call it, which will do just what the name implies, and that is to stabilize the budget in down years.
If this system had been in place for this past decade we would not be in the mess that we are in. The budget would be more manageable, we wouldn't have those billions of dollars of deficit, and we would have been spared a lot of the fights that poisoned the air in the Capitol, and we would have had more time to spend on very important issues like education or infrastructure, or health care. So much political gridlock could have been spared and could have been avoided.
Now, under my plan, when we know that a deficit is developing during the year, instead of waiting and waiting and waiting, and seeing billions of dollars of deficit accumulate, this constitutional amendment would automatically trigger lower funding levels for state programs already agreed upon by the Legislature.
Californians are resilient. We will get through this budget challenge, there are not two ways about that. I believe what Ronald Reagan once said. "If California's problems and California's people would have been put in the ring together it would have been declared a mismatch." Because we can do anything we want, once we decide we want to do it.
Now, over the past four years we have made amazing progress on very important issues that have been long ignored, if it is Workers' Compensation reform or global warming, or rebuilding our infrastructure and so on. I know that we can do also this, that we can solve this budget crisis once and for all. I know how hard it is also to end business as usual. But let me tell you something; that when it comes to the budget, business as usual has been disastrous.
Working together, 2008 can be the year where we summon the political will and finally gave California the responsible budget that taxpayers deserve and need.
So thank you very much, and now if you have any questions, please feel free to ask. And again, Mike will be here giving his presentation. And he will also be available for any detailed questions, because he knows a lot of details, that's for sure. And by the way, anything you didn't like about the budget, it was his fault, and all the good stuff is me. (Laughter)
Q: Mr. Governor, you talk about overspending, trying to get the Legislature to come on board. But you have the line item veto now. You can stop overspending any time you want, yes?
GOVERNOR: Yes, we can. Absolutely.
Q: Then why is this an issue at all? Why can't you just stop the spending problem unilaterally?
GOVERNOR: Because we don't really want to drag the budget out and fight for months and months. Because what has happened, when you look at the history of the budget process, those fights that go on sometimes to August and September, it's unnecessary. I think that the Legislators and the Governor's Office can work on more important things than just spend three months every year, or two months every year, like we did this last summer. We spent two months extra just on the budget, where we should have really negotiated about water, to protect California, so we have water in the future, reliable and safe water in the future, or to build more infrastructure, to fix our education system and so on. So we get stuck every year with the same thing, when in fact all we have to do is really create a budget system that is stable.
What we want to do here with this is create stability, because those ups and downs that we're experiencing right now is not fair to the children, it's not fair to the vulnerable citizens, and it's not fair to the taxpayers. I think they deserve better. Yes?
Q: There are early reports that you propose to close some parks, one in five. If those are accurate, why do you propose to do that? Are you proposing to sell the parks? And why not raise some fees, insurance fees to do this, rather than something so draconian?
GOVERNOR: Well, as you know, that for us the challenge here is that we see an increase in spending by 7.3 percent. We cannot afford that. We have to stay -- that's why I said the line, our spending line and our revenue line has to be together. We cannot have the spending line go off on its own. We have an increase in spending, but we only have so much money, so we have to be fiscally responsible. So we have told every one of the agencies that we want to make an across the board cut of 10 percent, where we don't favor one department over another department. I think this is the important thing.
And again, what we want to do is create stability. And I think that there are some charts here that you can see very clearly, right here. This is what is happening right now. You see that the spending goes totally off on its own, even though there is only a limited amount of revenues. And what happens here, we got them together, both of those lines, but only for a short period of time. Now here, revenues are flattening out, but the spending takes off again.
So what we want to do is, we want to bring those two lines together, and I think this is what we show, for instance, on this chart. If we would have had the system in place, a fixed budget system, and the reforms that we are talking about right now, this would have happened. Those lines would have joined together and would have gone, and the children and the vulnerable citizens would not have to go through those ups and downs, through this roller-coaster ride where they have to hold on for dear life, like I said earlier.
We've got to be disciplined. Here, this is what's happening if we don't have budget reform. Look at this. We are separated here, those two lines, the spending line and the revenue line is separated here by up to 10, 11 billion dollars a year. And there are people that are suggesting we should maybe increase taxes. You cannot tax your way out of this problem, no way. We've got to just simply fix the system. And I'm absolutely convinced, if Democrats and Republicans sit together, we can fix this system, because we have fixed so many of the things before.
And I think that's the big difference. When I came into office in 2003 there was no way of fixing anything, because Democrats and Republicans did not get along. Now, we sit together many more times, I think they get along much better, even though there are different political philosophies and ways of approaching things. But the chances -- because they know that we have to do things that are best for the taxpayers, best for the voters, best for the people, we can fix this. There's no two ways about it. Yes?
Q: How are you going to respond to criticisms that this budget would seem to be very inconsistent with other goals of your administration, particularly things like the health care reform? I mean, you're proposing a major cut to Medi-Cal while you're going to be asking voters later on to expand the system. You also have agendas surrounding infrastructure, flood control. This year was going to be the year of education, talking about a major hit to education. It would seem that these two are extremely inconsistent in terms of logic for the voters and the taxpayers. Please respond to that apparent inconsistency.
GOVERNOR: Well, I think, as you remember that I mentioned during my State of the State Address as an example, Roosevelt. And the reason why I mentioned him is because even though there was a depression, he did not just wait and hope for something to happen. He was acting, he was making a move. And he started building bridges, he started building highways, 650,000 miles of highways, and 78,000 bridges, and 125,000 buildings and all this. All of the things we still enjoy today. He went out and made a move forward. He did not say because this is a temporary problem people should suffer permanently because of it. No. He wanted to do things, and that's what we have to do.
Health care reform has nothing to do with the budget; two separate issues. The health care reform is revenue neutral. What we want to do is, we want to move forward. We have right now 6.7 million people that are uninsured. That costs the state a lot of money, billions of dollars. What we want to do is, we want to fund Medi-Cal so that doctors get their fair share, that hospitals get their fair share and so on. We want to make sure that the hospitals don't close emergency rooms. We want to make sure that people are not waiting nine hours for a doctor. We want to make sure that people don't have to live in fear always, like I have said in my State of the State Address, where people live in fear when they have insurance and they get sick that the insurance company cancels their policy. All of those things. Those are serious problems that people are suffering in California. We want to solve those problems. That is our responsibility.
The same is also with water. We need water. We have barely enough water right now, safe and reliable water. In 10 years it will be worse. In 20 years, we maybe don't have water. So this is why it is important for us to guarantee that the people of California have water, that the farmers have water, that when you turn on the faucet in 20 years from now there's water coming out.
So we have that responsibility, and I'm very happy that the leaders see it the same way, Democrats and Republicans. We just have maybe different ways of how to approach the thing, but we're going to work that out so that we have water, reliable water, in the future, that we solve the health care crisis that we have, and then fix that health care system once and for all. We can do all of those things while still fixing the system of the budget so that we create more stability, which means the budget, the revenues and the spending, will go up every year, but much more evenly.
Q: Governor?
GOVERNOR: Yes, please.
Q: There's a suspicion in the Capitol, particularly among your fellow Republicans, that you're laying out an apocalyptic sort of viewpoint to essentially prepare the ground for eventually a deal that may include your Budget Stabilization Act, but also new taxes. Are you taking the -- I guess I'd call it the George Bush pledge, "Read my lips, there will be no new taxes, period"? Or are you leaving that door open?
GOVERNOR: Well, I never tried to copy someone else's lines, and you would never -- (Laughter) You will never hear me say, "Make my day." (Laughter) I say "I'll be back," but not "Make my day."
I have made it very clear that we cannot tax our way out of this problem. I do not believe in tax increases. I think the people of California are sending to Sacramento plenty of dollars, 130-some billions of dollars they are sending every year for us to function. If we cannot function with that money, then there is something wrong with the system rather than with the people. I will not go back and ask them to increase their car tax. I don't want to go back and ask them for any tax increases. They deserve better than that. They deserve us to function well, and to create a system that is more stable. That is what the people of California deserve.
Q: You don't want to do it. Are you saying absolutely, under no circumstances --
GOVERNOR: There is no reason to tax anyone here because our system doesn't work. Because again, look at this. If you look at the line, I want to go back here -- when you look at the line, it keeps going up. It's not going down. It keeps going up. All we have to do is create the stability like this shows here, this chart shows. That's what we want to create. We don't want to take money away from education, we don't want to take money away from health care, or from prisons, or anything. We want to create stability, because right now it's a roller-coaster ride. That's the only thing we're trying to do here. And I think we have seen it work very successfully in Arkansas with their system, where they have predetermined of what programs to cut if there is a downturn economically.
And also with the combination of us putting together a rainy day fund, where we can put larger rainy day funds together than we have under Proposition 58. And as you remember, we negotiated in the beginning, the first try which didn't pass, a much larger rainy day fund. If we would have had even that in place now, we would have not been in this problem. So I think we just have to be disciplined this year and just look at this as an opportunity to solve the problem.
And I also want to tell you, it's very important to understand, and for you to know my thinking here. There is no one in the Capitol that is trying to waste money. There is no one in the Capitol that is an irresponsible spender, or anything like that. Everyone is trying to do what is best for the people of California. We have different ways of looking at it, of what are the priorities, and all of those things. So that's why I think when we approach it that way, I think we can sit down and really come to a solution and fix the problem. Yes?
Q: A year ago this month you and Mr. Genest suggested that the structural budget deficit was largely tamed. You signed all those budgets you now decry. When you say the villain is the system itself, you seem to be letting yourself off the hook. Aren't you a villain too?
GOVERNOR: Well, first of all, let me just say that we have done an extraordinary job -- an extraordinary job. When I came into office we had a 16.5 billion dollar deficit. Every year we chipped away and we lowered it by 4 billion dollars, and we came down to zero this last year. This last summer we were down to zero with our structural deficit, knowing then already that it would shoot right back up again because of the spending formula. We did not address the formulas. We did not address the budget system. Democrats and Republicans sat down this last summer and worked out a budget that I was proud of. But we all knew that it will go up again because of the out-of-control formulas.
What I'm saying this year is let us control. Let us take charge of those formulas. Let's fix those formulas so that the spending line and the revenue line kind of are together. So when the revenues go up we can increase the spending a little bit, but take some of that money and put it in a rainy day fund. That's what we are saying. Yes?
Q: If the people are sending enough money to Sacramento for state spending, the inmate -- the early inmate release proposal then, is that more of a philosophical thing on your part than budgetary?
GOVERNOR: No. I think first of all, as you know, we are having parole reforms already on the way. Second of all, we have institutions that were built for 100,000 people and there 172,500 people in there. I think the federal judges are breathing down our neck and saying that we're going to put a cap on you, 140,000 prisoners, that's all you can have in there. So there are all kinds of problems developing.
Now, it happens to be also at the same time that we have a budget situation where we want to cut across the board. And so therefore when we say across the board, even though some people criticize that, I say that was the fair way to do it, and we really went after every program. Now, of course there are programs that one party enjoys that we are cutting, this program and that program, and another party will enjoy different programs that we are cutting, and one party will be dissatisfied with one program cutting, and all of this will happen.
This is a budget that doesn't please everybody, I know that for sure. And you will have people coming out of this room afterwards and spinning why this is all terrible. But the bottom line is, I think this is the fairest way to go, and we wanted to show and send a signal that we don't cut back on what is popular amongst Republicans, or cut back of what's popular amongst Democrats. It was across the board.
Q: Governor, over here?
GOVERNOR: Yes, please.
Q: We get it, you don't want to raise taxes. But how can you in one breath say you don't want to raise taxes, on the other breath say okay, we're going to impose a fee on homeowner's insurance policies, we're going to raise DMV fees. The spirit is still the same, the pain in the pocketbook is still the same. Why do you see that there's a difference? It's the same to consumers, Californians.
GOVERNOR: We promised the California people that we will not raise taxes. We promised the California people if they vote yes on Propositions 57 and 58 that we'll get this 15 billion dollars and we will fix the economy, bring the economy back and create jobs and all of those kinds of things, without raising taxes. I'm going to keep my promise. I will not raise taxes on the people of California, because they are already paying enough taxes.
Now, at the same time, when we had the fires, it became very clear that the first few hours are the most crucial hours to put out a fire, because after that they go out of control. And so we need more fire trucks, we need more fixed wing aircraft, we need more helicopters, we need a lot of resources. So we want to create those resources, because that will protect billions of dollars of property in California, this 100 million dollars, 200 million dollars that we raise through those fees. So this is why it is very important, in order to support the fire department and to support those people that are really working day and night, sometimes three days straight without getting any sleep in or order to help us protect lives and protect property. So this is a support system.
Thank you very much. Thank you all for being here today.
