A Lean and Fit State Government

Pushing the state toward reform

In his world-famous “New Encyclopedia of Modern Body Building,” Arnold Schwarzenegger discusses the dynamic nature of the human body. The book describes how, if you apply a 15-horsepower load to a 10-horsepower motor, it will eventually burn out.

In contrast, over time the human body will change from a 10-horsepower motor to a 15-horsepower motor, getting stronger to achieve greater results. It is clear from his State of the State address and his budget released Friday that this is Gov. Schwarzenegger’s vision for government as well.

It is no wonder that his budget is referred to as “California’s workout plan.”

Putting the state’s budget picture in stark terms, Schwarzenegger points out that we face a $26 billion shortfall — approximately $12 billion carried over from previous years and another $14 billion projected for the coming year. But he also recognizes how fragile the economy has become with skyrocketing workers’ compensation costs, some of the highest energy prices in the country, and an oppressive system of regulations.

Realizing the dangers of a declining economy, Schwarzenegger reaffirmed that tax increases cannot solve the problem. Over the past five years, revenues increased by a healthy 25 percent but spending grew by 43 percent.

The key message of Schwarzenegger’s plan is that we must control spending or risk collapsing into bankruptcy. As he put it, “if we do not control spending today, we will put every program at risk, because California will be bankrupt. And a bankrupt California cannot provide services for anyone.”

As with bodybuilding, the pain is the worst getting rid of the initial flab, and there is plenty of that in California’s spending. Whether one supports or opposes various elements of the plan, it certainly deserves praise for being a brutal assessment of the current situation and what it will take to get out of the mess.

The most controversial elements of his plan include shifting $1.3 billion away from local governments to help plug the hole — essentially extending a deal that recalled Gov. Gray Davis created last summer when he withheld three months of car tax monies from local governments. Social services also will shoulder a significant burden, representing approximately $4 billion in savings. Virtually all state agencies will see reductions.

But how can we reduce our level of spending and not watch our quality of life erode away?

Here is where Arnold’s bodybuilding approach kicks in. In his budget presentation, he explained that less money does not have to mean fewer services and that the only choice is not one between tax hikes and cuts in quality of life. Like the human body, government can lose weight and achieve greater results at the same time.

Last year, Reason Foundation and the San Diego-based Performance Institute released a comprehensive “Citizens’ Budget” plan, presenting a variety of tested reforms to get more while paying less. As Schwarzenegger looks for ways to reduce overall government spending, he is already implementing many “exercises” to also improve performance in his California workout.

For starters, Schwarzenegger promised a top-to-bottom reorganization of state government, something that is long overdue. But he isn’t interested in just reorganizing government. As he said, every governor tries to move boxes around. “I don’t want to move boxes around; I want to blow them up.”

In our analysis of the budget, we projected that California could save $770 million by consolidating overlapping departments and eliminating unnecessary boards and commissions. California has two different agencies whose mission is to protect the environment, the Resources Agency and the Environmental Protection Agency. Not only does this cost a great deal of money, it makes little sense. In the process of his top-to-bottom review, Schwarzenegger should carefully review the state’s portfolio of real estate and other assets. We estimated that another $1 billion could be saved by selling off those assets we do not need.

Secondly, Schwarzenegger struck a landmark deal with the education community to provide $2 billion less than what autopilot spending would provide along with the necessary flexibility to make spending decisions locally rather than from Sacramento. By cutting strings tied to some pots of education money, he was able to increase per-pupil funding by $216 per child.

He also intends to push for the repeal of a law that prevents school districts from shopping around for the best most affordable non-instructional services like janitors and buses. These examples directly underscore his desire to get more while paying less.

Finally, Schwarzenegger intends to pursue a dramatic reform in the way the state does business by pushing a constitutional initiative that would open a range of state services to competition so that taxpayers could get lower cost and higher quality. We estimate that as much as $8 billion in savings can be achieved through a comprehensive competition plan.

Certainly, the governor’s plan is not perfect, relying on the revenue transfer from local governments and various fee increases, and it will no doubt change over the coming months. Still, it reflects a fundamental departure from past practices in that it actually confronts the state’s spending problem.

And Schwarzenegger is correct. Just like the body, governments can change. In the process of change, we can become more efficient, lean and effective.

Maybe being a champion bodybuilder isn’t such a bad background for California’s chief executive after all, particularly now that the focus will shift toward muscling the Legislature to join his call for reform.

George Passantino is director of government affairs at Reason Foundation. He served as a director on Gov. Arnold Schwarzenegger’s California Performance Review.