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.

California will suffer a more severe recession than the rest of the U.S. economy according to a report issued by the Milken Institute. The report, The Economic Outlook for the United States and California, Slow Growth or Recession?, by Ross DeVol, director of regional economics at the Milken Institute with assistance from Armen Bedroussian, summed up its analysis this way: "If the U.S economy has the sniffles, California’s economy has a full-blown cold-with all the associated aches and pains."

However, DeVol points out the recession will be mild by historical standards.

The report says California’s economy will be hit harder by the housing market correction, depressed consumer spending, and slowing imports. Also, California’s economy, especially in the L.A. area still feels the effects of the Hollywood writers’ strike. The report claims that California will face a net job loss in 2008 with the unemployment rating hitting 6.6 percent in the fourth quarter.

Los Angeles
Mayor Antonio Villaraigosa spoke at a meeting of the Valley Vote organization last
night in the San Fernando Valley. He’s not the
governor and I didn’t ask him if he was running for the job, but as we walked
out of the meeting I did ask him how he would handle the current state budget mess.

Villaraigosa responded: "I’ve said
for some time the state budget deficit is a spending problem but it’s also a
revenue problem. There are very real structural elements to it. The only way to
resolve this budget deficit is to cut some spending and also to raise revenues
and that’s what we’re doing here with the city budget. We’re saying for every $1.50
in cuts we are going to raise a dollar in revenue."

My thoughts: Using that formula on a
$20 billion state budget deficit problem would mean a combination of $12
billion in cuts and $8 billion in tax increases. Scary numbers. Yes, I know
that is a static calculation and that’s not what the final numbers would be, but
a one-and-a-half to one ratio still means a large tax increase in a tough
economy. I don’t think the voters buy it and we know the Republicans in the
legislature won’t. The economic ripples from a large tax increase would not be
good for the state economy.

I also asked the mayor about Los Angeles’ reputation
for being bad for business.

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