Lurching From One Budget Crisis to the Next

Friday, August 20, 2004

Page 7

CALIFORNIA COMMENTARY (Column)

Lurching From One Budget Crisis to the Next

By JON COUPAL

(The writer is an attorney and president of the Howard Jarvis Taxpayers Association.)

Whether we like it or not, it is already time to start thinking of next year’s state budget and its impact on taxpayers. Fiscal policy in California is now a year-round sport.

This summer saw approval of a new budget without a tax increase, just as the governor promised. However, the budget that passed spends several billion dollars more than the governor requested because lawmakers have proven unable to curb spending. The budget was “balanced” with one-time fixes such as cutting deals with a handful of Indian gaming tribes, borrowing, and taking more money from local government (with a promise it won’t happen for more than two years).

In fact, the budget is not balanced at all and the “structural deficit” still exists. The only good news is that Schwarzenegger made some real progress in closing the gap. How quickly we achieve a truly balanced budget depends on many factors, not the least of which is the additional revenue that a revived economy provides. But even under the best assumptions, an honest budget where expenditures do not exceed revenues is still two years away.

Two years? The average citizen wants to know, what is so darned difficult about spending no more money than we have? The answer lies in the culture of California politics and, indeed, human nature itself.

The current attitude of most government officials towards the state’s taxpayers can be best summed up in the more than two-century-old words of Thomas Paine: “We still find the greedy hand of government thrusting itself into—every corner and crevice of industry, and grasping at the spoil of the multitude. Invention is continually exercised to furnish new pretenses for revenue and taxation. It watches prosperity as its prey and permits none to escape without a tribute.”

Let’s be blunt. California is already a high tax state. The result is that we are already suffering an exodus of businesses, jobs and taxpayers. For California to be competitive we need to reduce taxes, not increase them. But as long as members of the Legislature have a free hand to spend at will, the state budget will lurch from one crisis to the next, making it difficult, if not impossible, to lower taxes.

We need to impose a spending limit with teeth. Although voters approved Proposition 58 in the March election, this did not limit spending. It only required that the budget be balanced, and reduced the reliance on borrowing. This was a partial solution, but not nearly good enough.

First, we need to roll back spending to a reasonable benchmark. From that point, spending increases should be restricted by a clear, concise formula, one that limits spending increases to increases in inflation and population growth. The formula should provide a maximum that can be spent. Moreover, tax revenue collected in excess of the limit should be placed in a reserve account that can only be tapped in case of emergency or if tax revenues fail to keep up with inflation and population. The “budget stabilization” is a critical component of what is needed, especially here in California where spending discipline is nonexistent.

California had a spending limit at one time, the work of Proposition 13 co-author Paul Gann, but it was taken from the people by stealth.

Proposition 111, a gas tax increase placed by the Legislature on the 1990 ballot, contained buried language that re-configured the spending limit formula in such a wway as to make it meaningless In the final analysis, a real spending limit prevents deficits. That is why Howard Jarvis Taxpayers Association has joined with Assemblyman John Campbell and the California Taxpayers Association to pursue an initiative, the Deficit Prevention Act. This measure, unlike the former Gann Spending Limit, limits all state spending, not just general fund spending. More and more, government spending is from “fee” revenue and “special funds.”

The ultimate goal is not to prevent all government growth, but to let government grow at a rate more reflective of the rest of society. If we don’t, we can expect the spending gluttony of elected officials to continue, and we will continue to be accosted every year with threats of higher taxes.