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A Tale of Two Budgets

By Tom McClintock
{Appeared in the July 18, 1996 edition of the Los Angeles Times}

"[The Governor] was aided in his [budget] by the strength of California's economy, which gave him more new money to distribute than he had a year ago," reported one major newspaper. Education was a big winner, said the state Finance Director, simply reflecting "that the budget is roomier this year…and that the Governor will devote more money to education whenever he can." There were expressions of bi-partisan support, with the Senate Democratic leader calling the budget "relatively generous in terms of funding for the status quo."

Again of the state budget, a major newspaper said, "[it is] a big-spending document made possible by rising revenues from the state's recovering economy." Another crowed, "The biggest winner…was--as it should have been--education." More expressions of bi-partisan support heard. Said the Assembly Democratic leader, "When you look at this budget from the standpoint of working men and women, seniors and children, this budget does the best we can for them."

Same show. Different years. The first observations were made eight years ago when George Deukmejian unveiled his 1988 spending plan; the second were made this week, when California's 1996 state budget was adopted. We have heard this song before.

1987 and 1988 were fat years for Sacramento's budget-writers. In 1987, surging revenues--and polticians' eagerness to spend them--pushed the budget over the state's maximum spending limit for the first and only time. In 1988, state expenditures exploded 10.3 percent in a single year. A billion dollars of new funds for education produced a truce in the feud between Deukmejian and state schools superintendent Bill Honig (although test scores continued to decline).

Everyone but a few conservative malcontents were effusive in praise for their mutual munificence. Sighed one Republican assemblyman as he surrendered to temptation, "I guess we'd better spend all this new money before the big spenders get hold of it."

But in mid-1988, the economy began to turn downward, and within a year red ink was seeping onto the state's ledgers.

California's experience was typical of the states that shopped til they dropped in the 1980's. Writing for the Cato Institute in 1991, budget analyst Stephen Moore summarized the fiscal wreckage of California and other high-spending states with words which should be haunting in 1996: "With few exceptions the states with the most severe deficits today are those that saw their economies and tax revenues grow rapidly over the past decade, but allowed spending to grow even faster."

The growth of California spending, for example, had outpaced the national average by 15 percent during the 1980's. Beneath the "Iron Duke's" dour exterior, it turns out, there beat the heart of a party animal.

According to Moore's study, the frugal states that had restrained their growth in the 1980's as a whole avoided crippling tax increases and massive budget deficits when boom turned to bust. Many ran surpluses.

California, of course, was not one of them. As recession ravaged revenues could no longer maintain the bureaucracies in the style to which they had grown accustomed, lawmakers attempted to fill the widening budget gaps with unprecedented tax increases and borrowing. The record-shattering 1991 tax hike plunged the state's economy from recession to near-depression, while California's total debt skyrocketed from $18.2 billion to $28.6 billion between 1990 and 1994.

Deukmejian at least maintained a three percent reserve until the last year of his administration, without which the state's fiscal plight would have been even worse. This year's budget provides about one third of that cushion.

California's 1996 budget repeats the 1988 experience in almost every detail. State spending will leap nine percent in a single bound, and Sacramento's solons have been able to appease every bureaucrat in town. Three billion dollars more will go to California's public school system this year, although serious proposals to change performance incentives were abandoned.

The old parable of the ant who stores a surplus in the summer to endure the winter while his cousin the grasshopper first feasts then starves is as true for governments as it is for families and businesses. Frugality in good years softens the bitter choices in the lean ones.

Ironically, an administration which has grappled for six years with the harsh consequences of profligacy now sets in motion the same cycle for its successor when the economy turns downward again.

It's the same old song, a familiar California medley: "Let the Good Times Roll," followed by "The Party's Over."