Brown budget plan too rosy for California investors
SAN FRANCISCO |
SAN FRANCISCO (Reuters) - Jerry Brown is a man with a too-rosy plan for bringing order to California's messy finances, say investors who see the budget process blueprint by the front-runner for governor as hopelessly optimistic.
The next governor is likely to face a budget gap of at least $10 billion, making the state's finances a top priority for the winner of California's gubernatorial race November 2. Lawmakers and Governor Arnold Schwarzenegger this month closed a $19 billion budget gap.
Republican Meg Whitman is trailing Democrat Brown in the polls by a small margin. The former eBay Inc chief executive has a 40-plus page playbook on how she would manage the most populous U.S. state's government. Brown, the state's attorney general, has a nine-point plan running to eight pages.
Its highlight is a budget process he would start months earlier than usual. Brown also proposes to "personally engage" all legislators on budget matters rather than just leaders of the legislature, and to hold on-the-road town hall meetings.
The result will be a consensus-driven budget, said Brown, California's governor from 1975 to 1983.
The municipal debt market, whose investors and finance professionals keep a close eye on California since it is the nation's biggest issuer of municipal bonds, is not impressed.
"He's just barking in the wind," said Marilyn Cohen of Envision Capital Management in Los Angeles, who called Brown's plan "way too touchy feely."
Like many investors interviewed, Cohen believes Brown's plan is too light on details.
EASIER SAID THAN DONE
California, with the world's eighth-largest economy, is not alone in its budget woes as other U.S. states, along with the governments of many developed countries, contend with sagging revenue and deficits. France has been besieged with protests over proposed pension reform and Britain on Wednesday unveiled a plan to slash welfare spending as part a dramatic cost-cutting campaign.
California's budget process has gone from bad to worse, with the state going a record 100 days since the start of its fiscal year before a plan was adopted this month. One of the few points of consensus is to use accounting gimmicks to push bills into the future, when the economy might have recovered.
Analysts don't see that happening soon and expect another lean budget next year. The 2010-2011 budget Schwarzenegger just signed provides for a general fund of nearly $87 billion, compared with about $103 billion in the 2007-2008 year.
"There's no chance that an economic upturn would make the budget deficit disappear," said Steve Levy, director of the Center for the Continuing Study of the California Economy. "It's going to be very difficult to craft a budget next year."
Brown was nicknamed Governor Moonbeam when he ran the state some 30 years ago, in part because of his progressive ideas. One of the more controversial points of his plan is Brown's unconventional call for "zero-based budgeting," in which he would craft budgets from scratch each year.
It's a lofty goal that is easier said than done, said George Strickland, a portfolio manager at Thornburg Investment Management.
"It's real hard to build a budget from the ground up," he said. "When you put together the cumulative wants and needs of everyone in the legislature you end up with a real mess."
Brown's plan for consensus would also put most of the pressure on one person -- the governor -- to forge it.
"Legislators are committed to their own priorities," said Neil Hokanson of Hokanson Associates, a family wealth manager in Solana Beach, California, who called Brown's proposal "appealing but not realistic."
"The current governor and prior governors have tried to bring people together with little success," he added.
AN INSIDER'S OUTSIDER
Brown, however, calls himself the insider's outsider, bringing decades of relationships and government knowledge to bear, as well as an outsider's view of what needs to change.
His approach may help ease years of tension and conflict between Democratic and Republican lawmakers, said Democratic consultant Gale Kaufman.
Democrats, who control the legislature, are also unlikely to dismiss Brown, as they would Whitman, when he says the state must live within its means, said labor lobbyist Barry Broad.
"They're going to get a dose of reality and reality ain't too pretty at the moment," Broad said. "I think he will be a fiscal conservative because there is no choice."
But Brown will have to push for support from union leaders who backed his campaign, and he would face lawmakers more partisan than when he was governor last. "If legislators are intransigent I don't see what this is going to do to get them to be more compliant," said Mitchell Savader of Savader Asset Advisors in New York.
"Jerry Brown isn't Oprah," added Jack Pitney, a professor of government at Claremont McKenna College. "He is a very bright guy, extremely well qualified, but he has an abrasive side that might not lend itself to the kind of approach he's talking about."
(Reporting by Jim Christie; additional reporting by Nichola Groom in Los Angeles; Editing by Doina Chiacu)
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