California Rejects Schwarzenegger's Budget Fixes

California voters resoundingly rejected Gov. Arnold Schwarzenegger's plan for plugging the state's budget deficit on Tuesday, voting down five of six ballot measures backed by the former action movie star.

"Tonight we have heard from the voters and I respect the will of the people who are frustrated with the dysfunction in our budget system," Schwarzenegger, a Republican, said in a statement issued after the polls closed Tuesday.

The only measure that passed is one that will block California state legislators, the governor, and other state elected officials from receiving pay hikes in deficit years. Though the measure, known as Proposition 1F, carried populist appeal, it will not generate much in the way of savings for the state.

The big-ticket items which went down to defeat on Tuesday included a two-year extension of higher sales, car, and income taxes. The defeated measures also included a plan to borrow from an expanded state lottery. To shore up the state's general fund, Schwarzenegger was also pushing a plan to divert tobacco taxes away from a special fund for children services and a 1 percent "millionaire's tax" away from a special fund for mental health services.

As a result of Tuesday's vote, the deficit in the nation's most populous state will now climb from $15.4 billion to $21.3 billion. Schwarzenegger, who has ruled out a new round of tax increases, said the state must now come together to make the hard choices needed to plug the state's gaping budget hole.

While Tuesday's vote will force Sacramento to grapple with a new round of spending cuts that the governor has said could include shortening the public school year by 7 days, cutting 200,000 children off state-subsidized health insurance, and shortening state prison sentences for up to 19,000 illegal immigrants, the state's politicos are also plotting a more fundamental reform of the budget process and governance structure.

One civic leader at the forefront of that effort is Bob Hertzberg, a former Democratic speaker of the California State Assembly who heads a reform group that calls itself California Forward. The group has laid out a series of steps it said would be a major government overhaul.

"We're not just rearranging the deck chairs on the Titanic," Hertzberg told ABC News. "Frustration is higher than it's ever been. California Forward is putting together a package of reforms. We're building support inside and outside of Sacramento. And our goal is to get it on the November 2010 ballot."

California leaders are weighing wholesale reform, according to Hertzberg, because Sacramento is facing a crisis of governance which extends beyond its current budget shortfall.

California Forward is seeking a series of revisions to the state constitution. Possibilities for the final package include:

Changing the state's vote requirement to pass a budget from two-thirds to 50 percent plus one.

Instituting multi-year budgeting while encouraging the legislature to engage in oversight during the off-year.

Reforming the state's tax system to make it more stable and business-friendly.

Implementing pay-as-you go rules.

Limiting the ability of Democrats to label higher taxes as fees.

Tightening rules on lobbyists.

Increasing the size of the state's rainy day fund.

Easing the state's term limits so that legislators could serve a total of 12 years in either the Assembly or state Senate.

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