Posted on 10/21/2001 8:05:15 AM PDT by dbbeebs
Gov. Gray Davis is one of those politicians who weighs the downside political risk of any situation and rarely exposes himself to it. Thus, when California found itself, during the late 1990s, wallowing in billions of unanticipated tax dollars, Davis was openly concerned about what would happen if, and when, the bubble burst.
Davis' financial advisers had told him that the extra money was coming largely from personal income taxes on capital gains and stock options in the go-go high-tech industry, and what soared one year could crash the next. The flood of money created, therefore, a dilemma since no one could say for certain how long it would last. Should Davis and the Legislature return the surpluses to taxpayers, set them aside as reserves against an uncertain future, funnel them into one-time spending on public works projects, or create and expand ongoing health, welfare and education programs as many Democrats favored?
The risk-averse Davis favored the first three approaches because none of them would expand what fiscal experts call the base-line budget -- the ongoing spending that must be financed year after year. The nightmare scenario, as Davis saw it, would be that state tax revenues would decline sharply just as he was seeking re-election to a second term in 2002, thus forcing him to slash state spending on education, law enforcement and other popular programs, or to seek a tax increase from the Legislature. But while he publicly urged a cautious approach, Davis was largely unsuccessful in resisting the Legislature's demands, and those of outside pressure groups, for more ongoing appropriations, such as the extra $1.8 billion in school aid that the California Teachers Association extracted from him last year. Thus, the state's general fund budget, especially the base-line budget, expanded by tens of billions of dollars a year during the first two years of Davis' reign.
As fate would decree, the nightmare scenario that Davis feared is becoming reality. The virtual collapse of the dot-com segment of the high-tech industry was followed by a more generalized economic slowdown, and then by a plunge in consumer confidence after the Sept. 11 terrorist attacks on the East Coast. State revenues from the volatile stock-option and capital-gains sources are nose-diving, sales taxes are ebbing and the budget that was enacted in June is already headed toward red ink. The reserve fund is probably shot, and Davis and the Legislature may be forced to make spending cuts in January, or even sooner, to stop the hemorrhaging. Davis has asked state agencies to plan for 15 percent reductions in next year's spending -- but in real dollars, with the exemptions for education and public safety he decreed, the effect would be minimal.
It's difficult to put a number on Davis' fiscal headache, because the revenue situation is so uncertain, but it's likely to fall into the $5 billion to $10 billion range over the next 20 months, even with the commitment of the reserve funds, and it could be twice as big because of another factor. Last January, with the state still running big surpluses, Davis began using state money to buy power because the major private utilities had exhausted their credit as power prices skyrocketed. The state's general fund is now owed more than $6 billion and Davis wants to recoup the funds from a bond issue that would be repaid by utility customers, but the bonds are on indefinite hold because of a complex dispute over how the utility revenue stream is to be allocated.
Would Davis raise taxes in an election year? Or would he adopt some of the legally questionable forms of deficit financing that Gov. Pete Wilson used a decade ago to get through the election without either deep spending cuts or raising taxes? And would even creative budget-writing be sufficient if the bonds are not sold?
While Davis will be on the spot as he seeks re-election, legislators won't share his peril since the new redistricting plan makes all incumbents and their designated successors virtually immune to voter backlash. At this point, Davis might be wishing that he had been a lot tougher about funneling those budget surpluses into reserves.
The Bee's Dan Walters
Davis did what Davis wanted to do. If he had known what was going to happen,he would have told the teachers union to go pound sand.
The truth is Davis did not have a clue. And his stupidity is coming home to roost.
The dot.com meltdown would have damaged California anyway, but combined with the energy screw-up, which was always more a matter of fiscal insanity than energy shortage, it will really put California in a tough place.
There is a bear and a red star on the Kalifornia flag for a reason -- we're gonna end up just like the former Soviet Union.
- CD
they should "open the border"....everyone knows that illegal mexicans put MORE into the economy then they TAKE...
HAHAHAHAHAHAAAAAAAAAAAAA....
that problems solved.....NEXT!!!
Better the voters find out about his stupidity prior to the election. If they put him back in office they deserve all that comes with such a move.
Davis didn't have the guts to do what was right in the Power Crisis, and he didn't have the guts to stand up to his fellow Democrats. And it was his decision to spend money out of the CA surplus on electricity.
I just wish the Legislature would get some of the heat too. But they're probably stupid enough to ignore even the reality of today's situation.
On one hand, I'd like to move back to California, to be closer to my family, but on the other hand, I'd hate to move back to this.
Of course, one of my Senators is named Clinton, and this state has budget problems too, not to mention the other things going on here.
I grew up in California, and though it is a beautiful state, I wouldn't move back there. Although it has better weather than Washington...:-)
if you keep electing demoRats....there won't be a Real WorldAudio
California is infested with libs but has some economy left. NY is one great welfare state with a rapidly deteriorating economy that Hitlery promised to fix. Two of my biggest smiles came when we left both liberal states behind forever.
Yeah and now it's a big damn mess. Don't know how to fix this. It's too bad...California is a beautiful state.
Too funny.
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