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How to Solve the Budget Crisis in Three Easy Steps

Senator Tom McClintock
Date: January 29, 2003
Publication Type: Column Print Version

California’s budget crisis is not complicated and it is not intractable and it is not mysterious. Over the last four years, population and inflation have grown at a combined rate of 21 percent. Revenue has grown 28 percent. Spending has grown 36 percent.
Our distress is not for lack of revenue but for lack of discipline. And to restore that discipline, three simple acts are all that is needed to put California’s financial crisis behind us.

First, the immediate budget shortfall requires policy makers to abide by the first law of holes: when you’re in one, stop digging.

Most of California’s deficit is not the difference between what it is currently spending and what it is currently taking in. It is rather caused by the projected increases in state spending over the next 18 months. Most of the deficit is not a matter of cutting current spending – but rather arresting the growth in future spending.

That growth is driven by a variety of constitutional and statutory mandates. But virtually all of them can be suspended by the legislature at any time by the same vote that it takes to enact the budget. The principal exception is service on the debt.

Thus, merely suspending these mandates and reducing current expenditures by 9.5 percent – and then holding at that level for 18 months – would eliminate the deficit without the tax increases, raids on local government and pilfering of pension and special funds that the Governor has proposed.

Could your family cut its spending by 9.5 percent in hard times? In this recession, many families are doing exactly that. Their state government, which is now spending a larger portion of their earnings than at any time in our history, could profit from their example.

Secondly, the discomfort of frugality could be eased dramatically if accompanied by a comprehensive review of every state agency and program now on the books. California State government spends roughly twice per person what Arizona spends, and yet Arizona delivers a vastly higher level of service in every category including academic performance, electricity generation, water delivery, and highway and housing construction.

The difficulty in conducting such a review – and acting upon it – is that every program has a highly motivated constituency that jealously and expertly guards its budget. Faced with the long overdue need to close obsolete military bases, the federal government confronted the same paralysis caused by interest group pressure. Ultimately, Congress broke the gridlock when it took the task of reviewing bases out of the political arena and gave it to an independent panel of management experts that returned a comprehensive recommendation for a single up-or-down vote.

This mechanism prevented the political logrolling, mutual back-scratching and parochial grandstanding that had long blocked the consolidation and closure of obsolete bases. The same thing desperately needs to be done with California’s bureaucracies.

Finally, with the state’s fiscal affairs back in order, a constitutional spending limit must be restored. California had such a provision from 1979 to 1990, commonly called the Gann Spending Limit, restraining the growth of state expenditures to the combined growth of population and inflation. State spending still more than doubled during this period, but only as fast as the economy could sustain it. In 1990, the limit was blown into the stratosphere by Proposition 111.

If the Gann Limit had been restored at the outset of the Davis Administration, California’s current budget would still be 21 percent larger than it was four years ago. But instead of a $35 billion deficit, California would enjoy a $5 billion surplus this year – and $30 billion cumulatively over the last four.