Fairy-tale budget really a horror story

E-Mail

Comments (0)

Text Size:

tool goes here

Gov. Schwarzenegger and some other Republicans frequently use this line about California: "We don't have a revenue problem. We have a spending problem." Yet as the governor acknowledged last week, California does have a revenue problem. It has nurtured one for decades.

Because of the state's reliance on capital gains taxes and sales taxes, its revenues rise and fall based on stock market performance and consumer confidence. This year, the revenue roller coaster has taken an epic downturn.

That means that lawmakers, in a special session this month, must reduce spending and-or increase revenues by a staggering $11 billion in the current year. And they can't dawdle. Every day, the state spends $1 for every 90 cents it brings in, and the hole gets deeper.

To add to their challenges, lawmakers can't simply borrow or defer payments. That's because the revenue slide isn't just a one-year headache. Without multiyear cuts or new revenues, the deficit could mushroom to $28 billion by June 2010, according to the impartial Legislative Analyst's Office.

The fairy-tale budget that lawmakers approved in September is partly to blame. The collapse of Wall Street and rising unemployment have reduced tax receipts to levels no one could have foreseen. To close the gap and stimulate the economy, Schwarzenegger last week proposed a mix of spending cuts, tax increases, mortgage reforms and infrastructure projects. There's much to like in this package. Perhaps its greatest virtue is that it is adequate to the task at hand.

Among other things, the governor calls for an oil severance tax, a higher booze tax, parole reforms and accelerated bond spending. Enacting all of these would allow lawmakers to avoid the worst possible cuts to schools, universities, welfare programs and Medi-Cal. Such programs would still face harsh reductions, but they'd be meat- cleaver cuts, not those of a chain saw.

Unfortunately, some of the legislators responded predictably. We were disappointed in this statement by Sen. Jeff Denham, R-Atwater: "So, let me get this straight -- big-spending politicians want hard-working Californians to bail them out? Forget about it!" That is neither thoughtful nor realistic.

Republicans need to get over this no-new-taxes mantra and Democrats need to face up to more spending cuts.

The governor proposed a temporary 1.5-cent sales tax increase that would generate $3.2 billion this year and $6.6 billion the following year. Schwarzenegger prefers a sales tax because he believes it would generate a quick and reliable source of revenue. In the long run, the sales tax should be extended to services. But with auto dealers closing and consumers cutting back, relying on the regressive sales tax as a quick fix is a dubious idea.

An alternative would be a temporary surcharge on personal income taxes. Such a tax would disproportionately hit upper-income earners. Individuals can deduct this tax from their federal income taxes, which means Washington would help bridge California's budget gap.

Lawmakers should also consider other ways to free up money in the general fund. Consider, for example, the money lawmakers raided last year from transit systems. Much of that went to pay debt service on transportation bonds that voters approved two years ago. Instead of robbing Peter to pay Paul, lawmakers should consider raising the excise tax on gasoline. Gas prices have dropped, so consumers could absorb a small hike in the gas tax. The revenue could then be used to pay off debt for transportation projects, freeing money to help transit systems and transit riders.

Republicans say California's spending is out of control. But as the Legislative Analyst's Office has noted, per capita state spending, adjusted for inflation, has not changed in California in a decade. Sure, overall spending has increased, but so have the population and the cost of living.

Most important, this is a true emergency. If lawmakers in California can't come to agreement on fixes, the state could run out of money by February.

Legislators from both parties must act quickly and put the state's interests above ideology. Republicans must accept the inevitability of new taxes. Democrats must accept cuts to vital programs and state employment (and support the governor's furlough proposal, even if it raises the ire of their supporters in the public employee unions).

Elected officials aren't the only ones who need to behave responsibly. Employee unions must face the reality that work force cuts are inevitable. The business community and citizens in general must mobilize to exert serious pressure on both parties to act quickly and firmly.