Inside the exploding boxes

As state government heads toward what may be its calmest struggle over the budget in years, it’s easy to forget that Governor Arnold Schwarzenegger is working separately on sweeping changes in pursuit of his promise to blow up boxes.

If successful, these changes could cut billions of dollars out of future deficits, creating permanent structural savings. They also could change dramatically the way Californians get their energy, health care, education and even legal representation. The design emerging from the Schwarzenegger administration illustrates a couple of facts you don’t see in media coverage: Yes, Schwarzenegger is a social liberal to moderate. But he’s also a free-market fiscal watchdog intent on instilling the twin Republican philosophies of personal responsibility and performance accountability.

Schwarzenegger has a radical future in mind. After budget battles die down this summer, it will be fascinating to see if he can blow up those boxes and rebuild them to his liking.

For starters, Schwarzenegger’s legal team is rewriting a crucial report on Medi-Cal that was badly muffed and rejected by the courts during the Gray Davis administration. The report argues why California should be allowed to change Medicaid rules dramatically—like so many other states have done—in order to save billions.

The governor is asking the courts and the Bush administration for huge changes. He wants to lower the price the state pays to Medi-Cal physicians—an idea previously rejected by courts. He also wants to instill personal responsibility, requiring the non-poor to pay some of their costs. He wants to end the lavishly nutty practice of letting half of all Medi-Cal patients seek costly “fee for service” care instead of managed care.

Health and Human Services Director Kim Belshe said, “The evidence is very clear that using managed care improves the outcome of the care, the access to care, and contains the costs. We are looking at totally changing Medi-Cal.”

If they dramatically remake Medi-Cal, that’s Box No. 1 blown up.

In what is perhaps Schwarzenegger’s most subversively brilliant move—and let’s keep in mind that, for all his joshing around, the governor is a deadly serious chess player—he is taking a run at contracting out government services.

Public employee unions see contracting out to private companies as nothing less than working with the devil. But, at his recent budget press conference, the governor said, “We should all be shocked” at things like phony prison budgets that aren’t worth the paper they’re printed on.

Schwarzenegger quickly replaced Davis’ cronies in the Department of Corrections. His new team produced a staggering $400 million in savings, but other costs exploded by $900 million. According to Department of Finance Director Donna Arduin, previous lawsuits, utterly unmanaged costs of medical care for prisoners and other absurd previous policies caused that $900 million cost.

Schwarzenegger is responding with a plan to “contract out prisoner health care to private health-care providers,” said Arduin.

The prisons are under a long-overdue political assault by the media and the Democrats right now. It will be difficult for the loudest, most left-leaning of the Democrats—who despise contracting out, because labor unions give them the bucks to finance their campaigns—to continue insisting upon costly public care for prisoners when private medical care is far cheaper.

Always understated, Arduin said, “We don’t think we have done all we can.”

If Schwarzenegger can bring private medical care to prisons, he will open a crack to contracting out in state government. That’s Box No. 2 blown up.

A free-market guy when it comes to rules on businesses, the governor intends to fight for a ballot measure in November to overturn Senate Bill 2, a well-intended but foolish law that requires anybody employing 50 people to cover their health care.

SB 2, truly a “job-killer” as the California Chamber of Commerce likes to say, proves my contention that elected officials should be required to take a high-school-level economics course. Only two other states in the nation have anything approaching SB 2. Now, Oregon, Texas, Nevada, Arizona and other states that are already openly stealing our companies away merely need to say, “We don’t have SB 2.”

Davis, a pro-business centrist, normally would have vetoed SB 2. But he was desperate during the recall battle for support from the Service Employees Union International, which ghostwrote much of SB 2.

On a related issue, Schwarzenegger also will fight in November to roll back a law that places all kinds of new labor rules on businesses. Failure to comply can result in prompt lawsuits, creating a field day for trial lawyers. While large companies can keep track of the blizzard of trivial new infractions, the smaller companies can’t. They get hammered with lawsuits. The excessive rules, Schwarzenegger has said, “choke business.”

If he manages to give business a break by rolling back the worst of the new regulations, Box No. 3 is blown up.

California’s infrastructure once was the envy of the nation. Now we’re more like Mississippi. So, Schwarzenegger is pushing for major changes in both energy and transportation.

If the rich Indian gaming tribes relent to Schwarzenegger’s pressure to pay a hefty percent of profit to the state treasury, Schwarzenegger says he’ll put all new monies toward delayed transportation projects. In the longer term, look for a proposal to widen Interstate 5, the main clogged artery in California.

On the energy freeway, he’s cooking up a plan to fix the infamously gridlocked Path 15 transmission line. Remember Path 15, which couldn’t handle the load during the 2000-2001 energy crisis?

Well, Gray Davis and the Legislature let it fester. Naturally.

“If we have extended hot weather in the north and south at the same time, we are in trouble,” said newly named Senate Minority Leader Dick Ackerman of Irvine.

Not enough power plants have been built, thanks to Davis and the Legislature. The Legislature instead played “blame and regulate.” Think of it as a religion. The vast majority of plant operators did not misbehave by “gaming” during the crisis. Yet the Legislature adopted a sweeping law to punish plants, which now must prove to state employees that they need to shut down for legitimate purposes.

The Legislature was warned that decent power suppliers, which never misbehaved, would avoid building in California because nobody trusts bumbling state employees to be fair, or quick, in deciding whether the plants are shutting down for good reasons or not.

It’s no mystery why we lack enough energy. California’s energy costs remain far, far higher than those of almost any other state. Schwarzenegger intends to seek reform through the Public Utilities Commission, which has at least some members who grasp the basic economic principles of supply and demand.

If he dramatically alters the energy situation, Box No. 4 blown up.

There are some things I like very much about how the governor is going about blowing up boxes. There are some things I dislike.

I like the way he realizes he has made a mistake and then announces it. For example, Schwarzenegger had planned to get rid of the position of inspector general of prisons. Instead, he is increasing the budget. Asked at his press conference why he flip-flopped, Schwarzenegger responded: “I think that was an error when we talked about the inspector general. [The job] was more like an auditor, so I said, ‘Let’s close it down.’ But then I realized later, ‘Let’s bring in somebody who’s really good.’” The governor now has a butt-kicker who’s supposed to go beyond namby-pamby auditing.

On the weak side, however, the governor is too enamored of certain philosophies, such as his preference for “local control” in the public schools. Tried and failed. Again and again. Period.

Local control translates to union control. Not parent control. Not principal control. In California, unions control school boards. When the Schwarzenegger administration gets ready to hand out an extra $150 to $180 per student, where does that money go if Schwarzenegger hands back even more “local control”?

For 30 years, because the unions control school boards, new money goes disproportionately to teachers. California teachers are the highest paid in the nation, but our children are ranked 30th or 40th in spending per child, depending on the source. We’ve lost things like music in many schools, and kids continually are shorted on books and materials.

It would be great if teachers made $90,000, but California has to stop hurting kids to please the California Teachers Association, United Teachers Los Angeles and others who pour fat contributions into political races.

The governor doesn’t get it—yet. But he’s put his most trusted confidante, Bonnie Reiss, on the state board of education. Maybe she’ll see the truth. Right now, this is one box he’s not blowing up.

But, all in all, the governor is lining up the boxes, although it could take a couple of years. California added 16,300 new jobs in April, according to the Department of Labor, and some analysts believe that’s not only because of the economic stimulation from federal tax cuts, but also, at least in part, because of a buoyant attitude among businesses that Schwarzenegger is bringing real change.

I have never liked boxes, which remind me of cubicles, which remind me of constraints, which remind me of failure. I’m glad to see the governor heading in precisely the opposite direction.