Finance

Pray For Peace

Combative and unpredictable, Steve Peace isn't your typical state budget director. But a $35 billion shortfall isn't your typical state budget problem.
by | March 2003

When California Governor Gray Davis telephoned Steve Peace in December to offer him the post of state finance director, Peace was shopping with his wife in the underwear section at Nordstrom. After accepting the job, Peace told reporters he and Davis had discussed government restructuring "between the bras and panties."

Such a remark is characteristic of Peace, known during his 20 years in Sacramento for language that is blunt, provocative and sometimes inappropriate. The gamble that Davis took in hiring Peace to manage California's $35 billion budget shortfall, though, is not the former state senator's loose language. It's the likelihood that he will toss out ideas far wilder than anything Davis is comfortable with.

Peace--long ago the producer of the schlock classic film "Attack of the Killer Tomatoes"--is unafraid to put forth a thousand ideas in the hopes that one will be brilliant, and the other 999 won't be held against him. In that sense, his approach puts him totally at odds with the cautious Davis. But in the past, enough of Peace's ideas have stuck to convince Davis he is the right man to deal with the huge state money gap.

Most state finance directors are scrupulously loyal to the governor, and go to extraordinary lengths to reflect the thinking in the executive office. Peace, by contrast, has already floated trial balloons that haven't sounded like they were carefully vetted. Davis, for example, wants to raise vehicle license fees, which are shared with localities. Peace, who favors an increased property tax on businesses, recently derided the license fees as the "crack cocaine of local government."

If examples of Peace's impolitic remarks abound, so do stories about his ambitions as a public policy thinker. During the recession of the early 1990s, Peace seemed omnipresent in discussions of budget fixes, although he lacked much of a formal role in the process. In 1993, he drafted a complete overhaul of California's workers' compensation law. Peace's legislative career was marred, however, by his role in the state's electricity deregulation debacle. When the bill deregulating the power system came through the Senate, Peace pushed for a more consumer-friendly approach than the one that prevailed. However, his chairmanship of the conference committee that drafted the final version probably doomed any aspirations for higher office. In any case, term limits had already ended his legislative career at the time Davis reached him in the lingerie department.

Peace now faces the challenge of selling Davis' package of massive spending cuts and tax increases to dubious former colleagues. Democrats control both chambers of the legislature, but they can't do much by themselves. Budgets require at least a two-thirds majority, and there are no Republicans who favor any tax increase.

Even so, a tax increase may be inevitable. Peace, who shares with Davis a desire to restructure California's tax system completely, predicts any tax increase will be coupled with a strict cap on spending in order to secure GOP votes. Getting to that combination will take more skillful massaging of the legislature than Davis has previously mastered.

That's just where Peace may prove most helpful. Davis' strategy in previous years has been to get budgets passed by buying off a few Republican votes with money for local projects. That stopped working when things turned ugly last year, and it is unlikely to work this time. "The governor's office has been very weak in understanding how to get to the endgame," says Fred Silva, of the Public Policy Institute of California. "Steve Peace is probably the most knowledgeable about how to get there."

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