Dan Walters

Walters: Crisis sharpens government pecking order

The ongoing relationship among federal, state and the vast array of local governments is complex, to say the least, and very often resembles a barnyard pecking order.

Those higher in the order of things, the feds, have their way with their cousins in lower strata and, of course, those compelled to do things they don't want to do complain loudly about their victimization.

When times are tough and public treasuries are strained, the relationships grow even testier. California politicians are looking to Washington for a bailout but are rapidly learning that federal relief often comes with strings.

Gov. Schwarzenegger and legislators have already rolled back some welfare eligibility changes because they violated federal guidelines. They were told last week that wage reductions for those providing home-based care for the aged and disabled could threaten federal stimulus funds that would relieve budget pressure.

The Service Employees International Union, which represents home care workers, evidently used its influence with the Obama administration, born of its multi-million-dollar presidential campaign contributions, to generate federal pressure on California to roll back the cuts.

A federal string called "maintenance of effort" could thwart further cuts in state aid to schools. While state law might allow another $5 billion per year school cut because state revenue is shrinking, legislative budget mavens believe that they could be limited to a $1 billion to $2 billion cut by the federal rule that states must maintain spending at current levels.

The Legislature's budget analyst, Mac Taylor, warned his bosses last week that as they seek federal underwriting for as much as $23 billion in short-term loans, because the state's credit rating is abysmally low, they could see some onerous strings.

"Strings attached to recent corporate bailouts as well as federal loan guarantees provided to New York City during its fiscal crisis three decades ago have included measures to remove financial and operational autonomy from executives," Taylor said in a report on the state's cash flow crisis, adding, "In our opinion, the difficult decisions to balance the state's budget now are preferable to Californians losing some control over the state's finances and priorities to federal officials for years to come."

While state politicians deal with the feds' demands, ironically enough, they're planning hits on local governments. Schwarzenegger told local officials Monday that if next week's ballot measures fail the state may be compelled to "borrow" several billion dollars from their treasuries and heard a howl of protests.

That's the way the pecking order works.

Contact Walters at 916-321-1195 or dwalters@sacbee.com.