Revenue volatility, an old issue, is getting new attention this year as Gov. Jerry Brown and legislative leaders pledge not to do what their predecessors often did – overspend windfall revenue.
“Boom and bust is our lot,” Brown told legislators in his State of the State address in January, urging them to follow the biblical injunction to save for leaner times.
Brown and legislators say they want a mandatory rainy-day fund that would absorb some windfall revenue and save it for periods of lower income.
However, while the notion has floated around the Capitol for decades and the state already has a weak system in place, it’s still not clear what, if anything, new and effective will be written into the state constitution.
Major Democratic constituencies, especially public employee unions, are leery of revenue diversions, seeing them as indirect limits on their agendas.
The other alternative to dealing with boom-and-bust revenue would be to overhaul the tax system, which is highly dependent on income taxes on the wealthy, to make it less volatile. But that would require raising middle-income taxes, and a blue-ribbon commission’s recommendation to that effect has been buried in the Capitol’s deepest hole.
While California may pride itself on being a pioneer in public policy, it’s very late in dealing with revenue volatility, as a new report from the Pew Charitable Trusts indicates.
It cites a number of other states – both red and blue ones, incidentally – which have confronted it head-on with rainy-day funds, revenue reforms and other tools to avoid the boom-and-bust cycle that has so frequently visited California and which, if anything, is bound to get worse as the state becomes increasingly dependent upon one-percenters’ success in the stock market.
The sophistication evident in other states’ efforts to chart revenue fluctuations and react to them is very impressive, as is the irresponsibility in those states that, like California so far, have been unwilling to deal with the issue.
A decade ago, Gov. Arnold Schwarzenegger promised to “tear up the credit cards” with a new law on spending and saving, and voters approved it.
However, the measure was largely written by Democratic legislators who didn’t really want a budget reserve law and has proved to be virtually worthless.
Later, Schwarzenegger forced Democrats to accept a tougher measure, but since his departure, its appearance on the ballot has been postponed and it probably will be dropped from next November’s ballot, if Brown and lawmakers agree on a substitute.
Brown wants to divert capital gains tax windfalls into the reserve, but the rules for withdrawing money will be the more important factor in its efficacy.
Pew praises Brown’s approach in a follow-up report, but we still don’t know whether it will be something real or another overhyped sham.