Deciphering Brown's Budget Pick

DEC. 15, 2010

By ANTHONY PIGNATARO

The stakes have never been higher. Since 2008, despite its requirement for a balanced budget, California has been wrestling with budget deficits between $11 billion and $25 billion. In November, the non-partisan Legislative Analyst’s Office (LAO) released a report predicting budget deficits in excess of $20 billion through fiscal year 2015-2016. Unfunded pension liabilities stand somewhere between a ghastly $100 billion and a cartoonish half a trillion dollars.

Enter Gov.-elect Jerry Brown. Pledging to “ensure that money is spent carefully and that state government is operated as efficiently as possible,” Brown hosted the first of three budget forums last week to put everyone on the same page, so to speak, where California’s fiscal shambles are concerned. He also made two decisions that seem to contradict each other. The first was to denounce $66 billion in budget “solutions” – budgetary gimmicks like the $1.2 billion “sale-leaseback” deal pushed by the Schwarzenegger administration and derided by both the LAO and Treasurer Bill Lockyer – that over the past few years have “made the future deficit worse.” The second was to appoint Ana Matosantos, Schwarzenegger’s Director of Finance, to be his own.

While it’s far too early to predict how the Brown Administration will deal with the state’s systemic budget deficit, the appointment of Matosantos – who has worked in the state finance department since April 2008 – raises all sorts of questions. Most notably: how can Brown promise to “reform” a budgetary process by hiring one of that process’s most important bureaucrats?

“The new Brown administration is the old Schwarzenegger Administration,” said one Assembly Republican staffer. “I have a feeling he’s tapping Schwarzenegger’s folks because they have been good at going out and creating a panic to raise taxes.”

Matosantos, a Democrat, is a native of Puerto Rico. She holds just a bachelor’s degree in political science from Stanford University. She first went to work in state government in 1999, as a 24-year-old consultant to the state Senate Committees on Health and Human Services as well as Budget and Fiscal Review. In 2004 she moved to the Department of Health and Human Services (HHS) Office of Program and Fiscal Affairs, where she worked as assistant secretary. Two years later she took over as associate secretary of legislative affairs for HHS – a job that paid $106,800.

From there Matosantos’ rise was meteoric. In 2007 she became Gov. Arnold Schwarzenegger’s deputy legislative secretary. A year later she was promoted to deputy director of the finance department. She held that job for two years, then moved to the role of director – which pays $175,000 a year – in May of this year.

It was quite an achievement for someone barely 35. Indeed, her youth seems to cause her some measure of grief. During a discussion of Proposition 13 at the Dec. 8 budget forum in Sacramento, newly-elected Assembly Minority Leader Connie Conway, R-Tulare, joked that some people on the stage weren’t even around when Prop. 13 passed. It was a half-dig clearly aimed at Matosantos, who responded by cooling launching into a detailed examination of Prop. 13’s effects on the state.

Matosantos’ job has never been easy – a fact acknowledged by Schwarzenegger when he first appointed her (officials with Brown’s transition office rebuffed repeated requests to interview Matosantos, who resigned her post as Finance Director on Dec. 7 to work full time with the incoming governor’s transition office).

“In the coming year, our state will have to make incredibly challenging and tough budget decisions, and Ana has the knowledge and expertise necessary to guide my administration through that decision-making process,” Schwarzenegger said back in December 2009 when he nominated Matosantos to be finance director. “With an extensive history in state finances, she has been a tremendous asset as a member of my staff and to the people of this great state and I look forward to continue working with her, as California’s first Latina director of the Department of Finance, to move California forward.”

That Matosantos’ finance experience was “extensive,” either in 2009 or even today, is debatable. But she has plenty of fans in the state Legislature.

“We can neither cut nor tax our way to prosperity,” said Sen. Sam Blakeslee, R-San Luis Obispo. “Larger systemic reforms are needed to fix the structural budget deficit. Having sat with Ana in Big Five negotiations, it is evident that she is exceedingly bright and understands the enormity of the challenges we face. But I also believe that she is sufficiently open-minded to consider the type of large scale reform that will be needed to move past this crisis.”

One legislative staffer compared Matosantos favorably to her predecessor, to a point.

“Matosantos is a very bright and thorough bureaucrat,” said one Assembly Republican staffer. “I’ve watched her for many years in general finance. Whatever she’s given, she knows it down to the nut. But how can she deal with $20 billion deficits? [Former Finance Director] Mike Genest was creative. But these days, maybe creativity is dangerous.”

That gets to the heart of the trouble with Brown’s (re)hiring of Matosantos. Even by Schwarzenegger’s own rhetoric, Matosantos failed to help “move California forward.”

The structural budget deficits plaguing California’s state government aren’t mere figments of accounting. They raise serious doubts about the state’s ability to maintain its infrastructure, to say nothing of paying future pension benefits for public employees.

“Unless plans are put in place to begin tackling the ongoing budget problem, it will continue to be difficult for the state to address massive retirement liabilities, maintaining service levels of high-priority government programs, and improving the state’s tax system,” the LAO reported in November.

That budget deficits have gotten worse during the course of Matosantos’ tenure at the Department of Finance is undeniable. What’s more, it remains unseen how Matosantos would deal with Brown, who comes to office with a strikingly different agenda than Schwarzenegger.

For instance, ever since the brutal defeat of his 2008 special election proposals to erase the deficit with borrowed money and tax hikes, Schwarzenegger has been uncompromising on the issue of further tax hikes. He’s also advocated massive cuts in social spending, including the wholesale elimination of CalWorks, which provides job and financial assistance to poor familes. What, if any, spending cuts Brown may propose are impossible to say right now, but most observers see him at least trying to get voter approval for some kind of tax hike.

“Brown seems set on getting a real budget, with or without taxes,” said one staffer with the state Board of Equalization. “I think he’ll try to raise taxes, but not until he’s inflicted real pain. He has to inflict real pain on large numbers of people this year to be credible. I’m not for tax increases, but he’s a lot more credible on this than Arnold Schwarzenegger is right now.”

Credibility aside, it’s hard to imagine how even Brown – certainly a master politician – could scare enough voters into approving increased taxes. According to the March 2010 report Taxifornia, put out by Pacific Research Institute (CalWatchdog’s parent organization), California “imposes the fourth-largest burden of government among the states.”

“Here’s my theory,” said the Republican Assembly staffer. “Brown keeps Schwarzenegger’s people, and makes them work scaring everyone on the need to raise taxes. This goes to a vote, but then the citizens say no way, and then Brown cleans house.”