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Ray Haynes

My Advice to Legislators: Don’t Rely on LAO Rosy Scenarios For A Budget Surplus

There is so much wrong with California at this point, from mob “smash and grabs” to “out of control” housing prices, to stratospheric gas prices, collapsing transportation infrastructure, as best demonstrated by the hundreds of ships setting outside the Port of Los Angeles, to the inner city rot caused by the failure to properly deal with the homeless, to the failure of the responses to the pandemic and a Governor who thinks it is his right to act like a tinpot dictator, and his unquestioning sycophants in the Legislature, all supported by the media lapdogs and ill-informed voters seemingly unconcerned with the collapse of the social structure their political leadership is creating in the once-great state of California, that it is hard to find good news about anything California government does. That is why last month, when the Department of Finance and Legislative Analyst Office announced California’s government was looking at a $31 billion surplus, a lot of politicians breathed a collective sigh of relief. How could they face the voters next year without offering some glimmer of hope? People can only take so much. A big surplus can be used to buy a lot of political support, and votes, as the election year approaches. Lots of pictures of lots of politicians handing out lots of checks to their local governments and supporters, as well as a couple hundred dollars of rebates to a lot of economically desperate voters. Thank God, many legislators are saying for a big surplus!!!

Not so fast…

History has shown that pre-election projections of large budget surpluses soon dissipate into record post-election deficits. Let’s take a look at the 2000-2002 rosy scenarios that ultimately led to a complete collapse of the California government, a recall of a California Governor, and record state borrowing to simply pay the bills to keep the lights on in California.

I was in the Legislature then, and had access to a lot of information that is difficult to find now, especially when I have bills to pay, and can’t spend hours on the computers searching the data to see exactly what is going on, like I did then. But I recognize the signs, and they are showing up today, just like they did in the early part of this century. Let me give you some quotes from the LAO in November of 2000 and 2001 and compare those predictions to what actually happened then. Then look at what the LAO is saying today about our the upcoming budget years.

Here’s a quote from the November fiscal outlook report in November 2000:

California is in the midst of an extraordinary economic and revenue boom. Seven years into the current economic expansion, the state’s economy continues to roar ahead, with such measures as personal income, taxable sales, and employment far outdistancing previous estimates. These economic gains, coupled with stock market-driven increases in capital gains, are translating into extraordinary increase in state revenues. As shown in Figure 1, underlying General Fund receipts increased by nearly 21 percent last year, and are projected to grow by another 12 percent in 2000-01. Eliminating the effects of inflation, the recent gains in General Fund receipts are the largest in recent history.

Two years later, LAO commented:

California policymakers will be facing an enormous challenge in crafting the 2003-04 General Fund budget. For the second year in a row, the state faces a budget problem in excess of $20 billion.

From record surpluses to record deficits in just two years. After the election in 2002, the Legislature and the Governor faced a deficit that included a $12 billion actual revenue deficit, and a projected deficit of over $30 billion. Voters, who felt deceived by these projections going into the 2002 election promptly removed the Governor in 2003.

So what is being said now by this same LAO about our upcoming budgets? Here’s the quote:

Despite the ongoing global pandemic and its disparate health and economic impacts on Californians, revenues are growing at historic rates and we estimate the state will have a $31 billion surplus (resources in excess of current law commitments) to allocate in 2022-23.

For those who think there is no way this $31 billion surplus can turn into a deficit, it is important to note that the general fund expenditures are more than double what they were in the 2000-2003 period.

Already, the Legislative leadership is looking for ways to spend the money that right now is only projected on expanding programs, creating a new base in the “baseline” budgeting process, and building in an unsustainable spending level should anything go wrong. As the Governor and the Legislature continue to do all they can to destroy the economy of California, they continue to spend money like the growth they are trying to destroy will go on forever.

Combined with what is going on at the federal level, we are on the brink of an economic adjustment that can be devastating to the state budget, and the political leadership of this state is making it worse by both adding new burdens to the taxpayers all the while spending the revenues that will ultimately disappear.

A few years ago, I predicted that reducing penalties on crimes would result in the crime wave we are experiencing in California today. It took a little longer than I thought it would to occur, but I knew it would happen. I predict the same thing with our budget. I can’t predict exactly when, but I predict it will collapse, and we will be told that increased taxes will be the only thing that will fix it. Both the collapse and the intended tax increase are avoidable now, but this government does not have the will or competence to avoid either.

We deserve the government we get.