Posted on 03/31/2005 8:27:41 AM PST by NormsRevenge
For the fiscal year that will begin on July 1, state budget revenues are projected to increase by 6.8 percent, or more than $5 billion. This healthy growth in tax receipts is due to California's strong economy, which now is humming along very nicely following the anemic years of 2001-2004.
Why, then, is Sacramento staring once again at a huge budget shortfall of $5 billion to $10 billion?
Gov. Arnold Schwarzenegger offers a succinct explanation. "We have $83 billion in revenues coming in. That is $5 billion more than last year, which is terrific news," the governor says. "But the autopilot spending formulas will push spending up to $93 billion and put California even deeper in the hole."
Schwarzenegger is talking about the state's "structural deficit" – the chronic gap between revenues and outlays that persists even in years of robust growth in tax receipts. The source of the problem, the governor accurately notes, is reckless overspending by the Legislature, spurred on by a range of special interests, from the politically potent state teachers union to prison guards and advocates for local governments.
"California does not have a revenue problem. California has a spending problem," declares Schwarzenegger. "Job No. 1 is reforming our out-of-control budget system."
To understand how Sacramento got into this mess, it is helpful to turn back the clock five years. In 2000, with the dot-com industry flourishing, income tax levies collected on stock options and capital gains surged to $17.6 billion – a spike of about $10 billion in a short period. At the time, nonpartisan Legislative Analyst Liz Hill warned that the windfall was a one-time fiscal anomaly that was not likely to recur. Then-Gov. Gray Davis even pledged to dedicate the $10 billion to special infrastructure projects rather than pump it imprudently into the state's annual operating budget.
Yet, legislators did precisely that, ultimately with Davis' signature on the budget. As Hill predicted, however, the spending spree lasted only a single year, due to the bust of the dot-com economy, and the spending addicts in Sacramento have been suffering from withdrawal ever since. In the current budget, income tax revenues from stock options and capital gains total only $7.3 billion – still $10 billion below the extravagant level of 2000.
As the accompanying chart illustrates, the governor and the Legislature still have not eliminated this structural gap, even after voters last year approved a staggering $15 billion in borrowing to close a deficit that at one point had reached as high as $22 billion.
To his eternal credit, Schwarzenegger has ruled out tax increases as the answer to the budget gap, in spite of strong countervailing pressures from the Democratic majorities who control the Senate and Assembly. Slapping higher levies on California's recovering economy would only corrode the state's economic vitality and competitiveness in the long run. It also would encourage, rather than deter, the irresponsible spending growth that created the budget debacle in the first place.
Consequently, the governor is asking the Legislature for a measure that would trigger automatic, across-the-board spending cuts anytime outlays exceeded revenues throughout the year, unless the Legislature itself took corrective action within 45 days. In the likely event lawmakers spurn Schwarzenegger's request, he is prepared to place his spending-restraint proposal on the ballot in a special election this fall. It is one of the four constitutional changes that define the governor's self-styled "year of reform."
A much tighter spending limit is being promoted by Sen. John Campbell, R-Irvine, and two groups of taxpayer advocates. Campbell and his supporters essentially want to revive the short-lived Gann spending limit adopted by voters in 1986. That measure essentially limited the growth in outlays to the rate of population expansion plus inflation.
The Gann limit required, with some exceptions, that voters receive tax rebates whenever revenues outran the spending limit. During the late 1980s, when the state's economy was booming, Gov. George Deukmejian actually issued rebates to millions of income tax filers. But Deukmejian himself engineered the demise of the Gann initiative with a 1990 ballot measure that eviscerated the spending limit in order to allow increased highway funding.
A rigid straitjacket on annual outlays, regardless of wildfires or earthquakes or other calamities, is not the best way to achieve long-term budget equilibrium. In years when tax receipts are high due to a strong economy, spending can reasonably be allowed to increase, provided the governor and legislators do not use one-time revenues to pay for ongoing operations, as they did in the first half of this decade.
The fundamental problem is not spending by itself, but rather deficit spending, which is fueled to a very significant degree by the automatic increases built into an array of entitlement programs, such as welfare and health programs for the poor. Schwarzenegger is right to focus on the causes of deficit spending. He could strengthen his proposal, which relies almost entirely on mid-year cuts, by eliminating the autopilot provisions of scores of programs, which foment higher spending without regard to the revenues available to pay for it.
Like every other aspect of his ambitious reform agenda, the spending-restraint plan promises to provoke overwhelming opposition from hidebound lawmakers and special interests in Sacramento. Yet Gov. Schwarzenegger appears unfazed. "If the legislators don't do their job, the people of California will," he says, "and I will join them and will fight by their side in order to once and for all stop the red ink."
Tom McClintock, talking about just this issue, is on the 8 'o'clock hour with Uncle Ree and Melanie Morgan Hill on KSFO. :)
"Runaway budgets - State has spending problem, not tax problem"
I knew that when I was 12 years old. Why are THEY just now getting the drift?
You caught on when it became your money you were spending, instead of given to you by Dad. The problem is that legislators aren't spending their own money; they're spending yours. And, like Dad to an 8 year old, they think the source is bottomless.
Does that graph say "trillions"?
Wow, California is in worse shape than I thought.
Oh, never mind...I put on my glasses.
Billions... not that that is comforting.
The California State Constitution needs to be amended to forbid autopilot spending programs.
No one is yet naming names, and making the individual Democrat legislators who foisted these spending programs on the state pay a political price.
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