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Stateline.org Weekly Wrap

As Republican Gov. Arnold Schwarzenegger’s finance chief for the last four years, Mike Genest has been on the front lines of the worst budget struggle in California history. He was the first person Schwarzenegger thanked before the governor signed the agreement in July plugging a $24 billion budget gap. Earlier this year, Schwarzenegger asked him to fill in for him as host of the governor’s weekly radio address.

“California’s budget is not just about revenues in and dollars out,” Genest said in the Jan. 10 address. “It is a blueprint for where the state needs to go. Now more than ever we need to cut waste, reduce spending while increasing revenue, keep people in their homes and stimulate the economy.”
Genest said Monday (Nov. 3) he would quit by Jan. 1 or sooner if Schwarzenegger finds a replacement. The 62-year-old Republican offered no explanation beyond what he told the Los Angeles Times: “It feels like a good time for me to step back from the day-to-day fray of things.”

Genest is well regarded among his counterparts in other states, who relish the chance to hear his views on the challenges facing states, often teasing Genest about the magnitude of California’s problems compared to the rest of the country. But it is a challenge, to say the least, to be a state budget director dealing with uncertainty about revenue forecasts, the cost of the federal health care plan and what will happen when the federal economic stimulus money runs out. One way to view Genest’s legacy is that he was an architect of the deepest cuts to education, health, welfare and corrections in California history.

“The state budget is going to need a lot of attention for years to come,” Genest told the Times. California already faces a $7.4 billion deficit for the fiscal year that begins next July 1, and that gap will probably widen as long as unemployment stays high.

Genest devised several budget-balancing gimmicks to go along with the spending cuts and tax increases. Among other things, the state borrowed $2 billion from local governments, raised $1 billion by moving the last payday of the fiscal year into the next year and generated $2.3 billion by speeding up tax collections.


It won’t solve Louisiana’s shrinking revenue problem, but state officials did get some good news this week when they learned that tardy taxpayers had paid $303 million in late taxes under an amnesty program. Twelve states set up programs this year, hoping their offer to accept delinquent tax payments in exchange for reduced penalties would bring in a little cash during the recession.

Louisiana’s program exceeded expectations. The $303 million was twice the amount officials thought they would receive; the number will undoubtedly grow because officials still are processing forms. Maryland officials said Wednesday (Nov. 4) their program generated about $10 million but they said they were not expecting much because of a huge response the last time they granted amnesty.

Louisiana, which will have a $1 billion shortfall in its fiscal 2010 budget and a $308 million gap in its Medicaid program, wants to spend the amnesty money on lingering costs from the 2008 hurricanes Ike and Gustav, higher education and to offset reductions in federal health care money, according to the New Orleans Times-Picayune.


A preview of tactics to come in the 2010 elections? Incumbent Iowa Gov. Chet Culver, a Democrat who is seeking a second term next year, is airing a TV commercial plugging his stewardship of the state budget crisis. A voice-over says Culver cut spending, reduced his own salary and balanced the state budget without raising taxes. A similar commercial ran last month.

Some Republicans, according to the Quad City Times, say that before the recession Culver increased state spending, which was the reason the state has now had to make cuts. This clever tack could be adopted by Republican—and Democratic—challengers in other states.

The truth is, the worst recession since the Great Depression has caused state tax revenue to plunge in Iowa and nearly every other state. The spending cuts are more a function of the historic downturn. But this fact probably will not stop both parties from attempting to exploit the issue of spending and budget cuts in campaigns next year.