News & Press

California's Lump Of Coal

Christmas came early for California in the form of a fat lump of coal. While the ink is barely dry on the budget signed in late August, and while you can still hear the faint echo of the Governor and Democratic leaders insisting that it was a responsible spending plan, the financial debacle Senate Republicans warned was imminent is now upon us.

The Legislative Analyst’s Office (LAO), the Legislature’s non-partisan fiscal and policy advisor, recently stated that the current budget is rapidly depleting the $4 billion reserve and will actually end up almost $2 billion in the red. Between this year’s shortfall and next year’s estimated deficit, the LAO believes California is staring down the barrel of a $10 billion budget shortfall. Now news reports are stating that the LAO underestimated the shortfall and that the budget deficit is probably over $14 billion.

This comes as no surprise to my colleagues and me in the Senate Republican Caucus. We were adamant that the Governor’s and Democrats’ budget proposals were bloated and seriously underestimated budget threats while over estimating revenues. Now, just a few months into the 2007-08 fiscal year our poor budget choices have come to roost.

Frankly, even someone with a limited understanding of the state’s economic condition could see that trouble was brewing on the economic front – jeopardizing the Christmas miracle Governor Schwarzenegger and the Democrats must have been counting on. The mortgage market meltdown that had been threatening for many months has stunted the state’s economy. This summer legislative leaders knew that revenues were already falling short of projections. While the Governor and democratic leaders ignored the facts, Senate Republicans were lambasted by lawmakers and newspaper editors alike for holding out for a more realistic budget. In fact, the $4 billion reserve that is now looking insufficient was actually less than $2 billion before Republicans demanded more spending restraint. 

Now that the inevitable finger-pointing has begun, Democrats are putting the blame on the Governor. You may recall that Governor Schwarzenegger’s first official act repealed the tripling of the vehicle license fee which had been instituted by Governor Gray Davis to help close the massive $38 budget deficit that opened up in 2003. The car tax increase was a major factor in the recall of Davis and the election of Schwarzenegger. To Senate Pro Tem Don Perata and other Democrats, its revocation meant they had less of your money to spend.

Mark Leno (D-San Francisco), Assemblyman and Chair of the Budget Committee, equated the Governor’s action as “squandering $20 billion so that an average car owner can pocket $200 a year.” All this time you probably thought it was the government that squandered your tax money, but Democrats apparently believe it is you who squander your money if they don’t take it away from you!

When tallying up who’s been naughty and nice where the state’s finances are concerned, taxpayers deserve none of blame. Democrats will always feel entitled to a bigger piece of your wallet, but let us not forget – state revenues are actually increasing. They just can’t keep up with the spending binge.

In fact, the LAO expects state General Fund revenues to grow at a healthy rate of more than 4.6% next year. When you take next year’s projections into account, state revenues increased more than 42% over the last five years. That should be more than enough to pay off the state’s debt and enjoy modest spending increases year after year. The crux of California’s fiscal disaster is rooted in the fact that over those same five years General Fund expenditures grew almost 44%. Next year alone those expenditures will go up another 7%.

Simply put, we spent more than we took in. And come January, Majority Democrats and the Governor are likely to continue paying lip service to responsible budgeting and the need for fiscal restraint while claiming every government program is critical and they cannot possibly make any spending reductions without doing major harm. Never mind the fact that there are literally thousands of vacant state positions that are funded, and most state programs are never audited to see if they are cost effective or even delivering the services they were originally intended to provide.

The current budget is so gimmick-ridden, it includes an assumption that California will raise $1 billion by selling the EdFund, which administers federal student loans – even though the sale won’t go through until next year and, in all likelihood, won’t even bring in half of that billion dollar asking price. Could you pay your bills by telling your creditors that next year you’ll probably sell an old car in your garage for twice the Blue Book value? Call Sacramento the “Island of Misfit Ploys.”

You may have thought the passage of Propositions 57 and 58 in 2004 – which authorized the sale of up to $15 billion in ”Economic Recovery Bonds” to pay off that state deficit and also supposedly required the enactment of a balanced budget – put an end to these chronic budget shortfalls. Obviously, that is not the case. Too bad there is no “lemon law” for state ballot initiatives.

Sadly, the fiscal crises will continue until we get serious about controlling spending, limiting government growth and making those difficult budget decisions that have been postponed year after year. You’ve probably heard that before – Senate Republicans said it all summer long. This time, however, Sacramento may finally have reached the bottom of its bag of budget tricks. At last, it’s time for California to confront its finances honestly. 

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