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California

Steven Greenhut
More Gimmicks, Less Honesty
California continues to play budget games.
17 May 2012

Jerry Brown returned to the governor’s office last year promising to wipe away the mess of Arnold Schwarzenegger’s administration and focus on fundamental budget reforms. Above all, Brown vowed only to sign “honest budgets.” But 16 months later, it’s obvious that not even Brown can escape the budget gimmickry or overcome the urge to “kick the can down the road” that has plagued previous administrations. Evidence of the governor’s new spin on the same old story is abundant in the May budget revision he released Monday.

As the Sacramento Bee reports, “The state budget deficit had grown by a remarkable 70 percent since January, but fiscal experts said the economy had little to do with it.” If not the economy, then what could possibly explain the shortfall? The answer: Brown and his administration embraced overly optimistic budget projections—what the Legislative Analyst’s Office described as “an aggressive forecast.” In January, Brown had claimed a budget deficit of $9 billion; today, it stands at $16 billion.

Over the past few weeks, the governor and the legislature cobbled together a budget that should get them through the constitutionally mandated June 15 budget deadline but likely won’t fix California’s enduring problem of spending more than the state takes in. The state government spends foolishly in good economic times as well as bad. Even as other states, like Texas, have seen robust economic growth in the past two years, California lags. Democrats, the majority party in Sacramento, would rather blame “the economy” than embrace policies that spur growth and make draconian budget cuts less necessary.

As for the fundamental reforms Brown promised, he’s delivered few, if any. His pension-reform plan made a good start, but Democratic leaders in the state senate and assembly virtually ignored it. Brown himself has expended no political capital to advance the reforms. Instead, he has spent most of his time and energy pushing his chosen solution of higher taxes. He has used the threat of spending cuts mainly as a ploy to scare Californians into approving a massive tax-increase measure at the polls in November, but now the governor says he’s really serious about those cuts. “When I have to cut and people lose their jobs, or a mother loses her child care, maybe her job, I’m reluctant to do that if there’s a plausible reason why we might not have to,” he said at a Capitol press conference Monday. “Now it turns out in this case we didn’t get the money.” Brown was referring to at least $2 billion in tax revenue the state expected to appear in April that did not—hardly a surprise to those who don’t believe in magic.

Marginalized Republicans can do little to shape the budget outcome except to keep pointing out the problems and hope that someone will take notice. “Senate Republicans have consistently raised concerns that last year’s majority vote budget relied on too many phony spending reductions, other irresponsible revenue assumptions, and gimmicks,” said Senate Republican Leader Bob Huff in a statement. The growing budget deficit was predictable, the Diamond Bar Republican added. “As state revenues have been increasing, total spending has also increased by $20 billion since the 2007-08 state budget.”

The Wall Street Journal made note this week of the overall weakness of the California economy, even as other states—including liberal New York—enjoy rebounding revenue growth: “Among the biggest surprises is a 21.5 percent or nearly $2 billion decline in personal income tax payments from what . . . Brown had anticipated. This reinforces the point that when states rely too heavily on the top 1 percent of taxpayers to pay the bills, fiscal policy is a roller coaster ride.” Brown’s proposal to hike taxes on those earning more than $250,000 a year will only add more twists and turns to the roller coaster. The Journal cites a Chief Executive magazine survey, in which California ranked last for the eighth year in a row in overall business climate. But it’s not just the high taxes and punitive regulatory climate that earned the Golden State such a lousy rating; it’s the perception that California’s government at the highest levels is hostile to business and private enterprise. The tales of businesses fleeing are not an exaggeration. Many take good-paying jobs with them; others haven’t left yet but are expanding their operations in other states.

Yet the usual suspects are lining up behind Brown’s tax hike. The Los Angeles Times used Brown’s announcement of the higher deficit to offer an over-the-top endorsement of higher taxes. Brown’s May budget revision, the paper’s editors wrote, “leaves blood all over the Capitol walls. The era when California governors could make their cuts with a scalpel ended before Brown took office, so he does his trimming with a chain saw. The results are cuts in Medi-Cal payments to hospitals and nursing homes, cuts to those who care for the disabled, cuts to state courts and cuts in hours and pay for state employees. So far schools have been largely spared from this grisly exercise, but that will probably change in November if voters fail to approve a tax-hike initiative.” Don’t expect the Times or the governor to push as hard for changes to existing government programs, or to look toward privatization or other significant reforms that will help the state stretch its dollars. And don’t expect them to recognize that higher tax rates will further depress revenues.

Brown said recently that wealthy people should pay more because they earn so much more than others. But they earn more in part because they produce more and provide jobs to those who earn less. As long as the state’s Democratic officials embrace the tax-the-rich philosophy, the wealthy will always be seen as little more than deep pockets for the state to pick. Nobody seems to understand that relying on fewer and fewer rich people to fund a greater share of the state budget is a doomed proposition. Brown also says that the legislature needs to “man up” and make more cuts. Given the governor’s taxing inclinations, it’s not clear he’s man enough to resolve California’s fiscal crisis.

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