FLASHREPORT

Arnold's Budget Continues To Sink Under Its Own Weight

An exclusive column penned for the FlashReport by John Seiler.

Arnold’s Budget Still Is Violating Seiler’s Law

Seiler’s Law on the California Budget is simple. It states that the state general-fund budget cannot exceed more than 6.2 percent of Californians’ personal income without running a deficit, sooner or later. Usually it’s sooner.

I discovered Seiler’s Law in 2002 while poring over state budget documents. Here’s my analysis from 2003, from the Orange County Register.

Originally I called it “The 6.2 percent solution,” a play on the 7 percent of cocaine solution that Sherlock Holmes was addicted to and for which he was treated, in the 1976 movie, by Sigmund Freud. The analogy was to government’s addiction to spending stimulation.

In 2005, I showed my theory to Tom Campbell, then Gov. Arnold Schwarzenegger’s finance director. “That’s Seiler’s Law,” he said, like “Moore’s Law in computing.”

It’s basic common sense. If you swim across a river with a five-pound pack on your back, you’ll be slowed only slightly. Increase it to 30 pounds, and swimming becomes quite difficult. Increase it to 70 pounds and you might drown, or at least will be treading water.

Government burdens are like that. If they get too heavy, taxpayers start treading water, drown, or avoid the matter altogether by leaving the state.

By clicking this link, you will pull up a graphic representation for California’s general-fund budget since 1970.

Clearly, Seiler’s Law still works. I’ll apply it here to Gov. Arnold Schwarzenegger’s May 2007 revision of his budget proposal, which is being hashed over as in state budget talks.

For fiscal 2007-08, he wants to spend $101.253 billion on the general fund. And the California’s personal income is projected to be $1,491.9 billion for the calendar year 2008. So the Seiler’s Law ratio comes out to 6.79 percent.

That’s a good clip above the Seiler’s Law limit of 6.2 percent.

Put another way, to get below the Seiler’s Law limit, the general fund budget would have to be cut by $8 billion, to $93.253 billion, to get down to a Seiler’s Law ratio of 6.25 percent (close enough for government work).

Guess what? As state Sen. Tom McClintock, R-Simi Valley, wrote on June 1: “Schwarzenegger's spending spree has now produced the biggest budget deficit in California's history -- $8 billion….”

If you look at the graph, every time California has exceeded the 6.2 percent limit – such as during the early 1990s under Republican Gov. Pete Wilson’s spending spree or 2000-2002 under Gov. Gray Davis’ dot-com-boom-era wild spending – the budget has gotten into trouble. All of Arnold’s budgets – 2005-06, 2006-07, and 2007-08 – have exceeded the 6.2 percent ratio. It was bound to catch up to him, and has.

The only response should be to cut spending $8 billion. Otherwise, the deficits will get out of control – again.

Tax increases won’t work, as Gov. Pete Wilson found out when he raised them in 1991 and 1992 and saw state revenues drop, from $42 billion in 1991-92 to $40 billion in 1993-94. During that time, signs popped up across the state, reading, “Nevada, here we come!” Productive, tax-paying citizens and businesses fled Taxifornia.

Revenues only rose again, to $46 billion in the 1995-96 budget, after most of the tax cuts expired in 1995. Tax increases today would only repeat that folly.

The state needs to start obeying the 6.2 percent spending limit. It’s the law. Seiler’s Law.
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John Seiler was an editorial writer for 19 years with The Orange County Register. Now he is an independent writer.

His California blog: CaliforniaComment.com.
His personal Web site: John Seiler.com
Send him an e-mail here.

(Sources: Historical data comes from the governor’s January 2007 Budget Summary, Schedule 6, Appendix Page 13. The most recent data – including for the proposed budget, comes from the governor’s May 2007 Revision , Figure ECO-04, Page 14.)