The Deukmejian Gambit

Joel Fox

Editor and Co-Publisher of Fox and Hounds Daily


The key to Gov. Schwarzenegger’s new budget plan might be
called the Deukmejian Gambit. And throw in some Jerry Brown, too.

A short history….In 1983, Governor George Deukmejian faced a
large deficit, although smaller in proportional terms than the one faced today
by Gov. Schwarzenegger. Deukmejian put forward a plan that included no tax
increases. There were the usual howls and protests. Other ideas were floated,
including—get this one—creating a state lottery to generate funds. A few
years later a state lottery was created and now this governor wants to borrow
against it to raise immediate cash.

Finally, a deal was struck between Deukmejian and the
legislature. A 1-cent sales tax increase would trigger if there was a shortfall
of tax receipts at a certain time.

The gamble was that the economy would improve. Gov.
Schwarzenegger is using the 1-cent sales tax trigger in a slightly different
way. It is a back-up plan to insure revenue will be there if voters reject the
idea of borrowing against the lottery. The sales tax would be in place for up
to three years unless the deficit is erased in shorter time. This governor is
also hoping for a swelling economy to bail out the deficit.

Let’s state clearly that tax increases during economic
downturns will dig us deeper into the hole. Let’s also state that mandates and
automatic spending formulas should be trashed.

Looking at the political realities of what might happen in
this year’s budget debate after all the yelling and saber-rattling, the refusal
to make cuts or to support anything that looks like a tax increase,
Schwarzenegger may have found some ground for compromise.

Why do I think so? He
is proposing no general tax increase in an election year, something even
Democrats will come to appreciate…..however, a promise of a tax increase to
come if things don’t improve….and, the hope that things will improve.

Could the
revenue situation improve in a few months? Maybe. Tax revenue is a bit higher
this April and prognosticators are predicting an upturn in early 2009. Perhaps
it will come earlier. Historically, the sales tax trigger back-up plan worked
for Deukmejian when tax receipts improved as he waited out the crisis and the
trigger was never pulled. Then there is the same human nature that is at work
in the legislature all the time….passing the problem on to the next generation
of lawmakers.


One last thought. How does Jerry Brown figure into this?
Remember, Deukmejian took over from Brown and a budget deficit was left on the
new governor’s doorstep as a sort-of welcoming gift. Deukmejian had to face the
deficit his first few months in office. If the Deukmejian Gambit doesn’t work
for Schwarzenegger as well as it did for Deukmejian himself, and other fixes
are not put in place, the next governor could inherit a real deficit mess —
and that next governor may well be Jerry Brown.

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