I got ahold of these last night but didn’t have an opportunity to post them until early this morning. From the godfather of fiscal prudence:
"Here is the great paradox of the budget before us: despite a 23 percent increase in revenues in the last three years, we’re running the biggest deficit in
"Let’s review the numbers.
"Income: $94.4 billion
"Spending: $101.3 billion
"Deficit: $6.9 billion
"We’ve enjoyed astounding 23 percent revenue growth these past three years – thanks in large part to the Governor’s determination to roll back the illegal tripling of the car tax, to hold the line on new taxes and to relieve some of the burdens of our Workers Compensation system. And the economy blossomed.
"We’ve taken in an extra $7 ½ billion of new revenues that nobody dreamed of.
"But the legislature’s budget spends all of that new revenue and then nearly $7 billion more for a three-year spending increase of 29 percent.
"Now, after a 29 percent increase in spending, are we to see a 29 percent increase in highway capacity? Or a 29 percent increase in education quality. Or a 29 percent increase in anything the government is supposed to be doing?
"But we’re told not to worry – almost $3 billion is being used to prepay debt. Well that is a very good thing, except that virtually all of that is debt that we owe to other government funds – those are transfers – not debt. We’re actually doing very little – less than a half a billion dollars – to prepay the $9 billion of actual hard debt that we owe to lenders.
"And even if you deduct all of that from the actual deficit – that still makes this the third largest budget deficit in
"If we are spending $7 billion more than we are taking in, where’s the money coming from? The good news is that we’re carrying over about $9 billion from the prior year. And that’s a good thing too – except the only reason we have that in the bank is because we borrowed $9 billion through Prop. 57.
"So, in a very real sense, our state is a family that went on a spending binge a few years ago and suddenly got laid off. We ran up about $9 billion of credit card charges.
"Today, we’re enjoying a better job and a nice bonus, and as we look forward to next year, we’ve got a comfortable income and roughly $9 billion in the bank. But we also have a credit card statement of about $9 billion. Question: shouldn’t our family use that money that’s sitting in the bank right now to pay off the credit card bill before we start in on another spending binge?
"Last year, the legislature overwhelmingly agreed that a $90 billion budget was quite adequate for the current fiscal year. $90 billion – that’s the budget you voted on one year ago in this room. Starting with that consensus figure and adjusting for inflation and population growth – that should come to roughly $94 billion for the upcoming year – which, coincidentally, matches our projected revenues. Holding spending to this level would allow for the immediate retirement of the
"But that’s not what this legislature is about to do. Rather, it is about to adopt a budget that runs up the biggest single-year deficit in our history, even amidst a bumper crop of new revenues.
"If this budget is passed today and signed intact, it will consume all but $2 billion of our remaining funds by the end of the year and leave us starting the 2007 budget debate – just six months from now – facing the exhaustion in the budget year of not only our remaining cash liquidity but our Prop. 57 borrowing capacity as well.
"And that assumes there’s no downturn in the economy. In that event, our prospects would quickly turn from grim to dire. Lest we forget: the budget crisis of 2000 was triggered by a revenue decline of just 7/10ths of one percent. Given the debt load and the deficit we are NOW carrying, the same decline next year would leave us billions of dollars short.
"And here’s the fine point of it: at this fleeting moment in our history, having just enjoyed a huge surge of revenues, we’re within reach of putting the state’s books back in good order. We have the revenues to accommodate a brisk 23 percent increase in spending over just three years and still have the money in the bank to pay off the
"But if you adopt this budget and run up spending at the unsustainable rate of 29 percent – while producing a record budget deficit in a time of plenty – then that moment of opportunity will slip from our fingers and we will expose the next session of the legislature to the very real risk of an unprecedented and intractable fiscal crisis.
"And I have to ask, in all earnestness, why in the world would you want to do that?
June 29th, 2006 at 12:00 am
California has spent more than it brings in every year since 2000. For the first few years, the blame was placed on the downturn in the economy, which slowed the influx of dollars into the state’s coffers. But former governor Gray Davis and the legislature ratcheted up spending as well, culminating in a budget morass that ultimately sent Davis packing.
Since then, California’s economy has been booming and tax revenues have reached all-time highs. But though tax revenues have increased 14 percent since 2004, state expenditures rose 25 percent. With this rate of expenditure growth, trying to close the deficit is like a dog chasing its tail. Once again a governor is partly responsible.
In 2005, Gov. Schwarzenegger emphasized the need for spending control. In his State of the State address that year, he told all Californians, “We don’t have a revenue problem, we have a spending problem.” The governor made it clear that rapid spending increases were hurting the state and even pushed for the passage of a spending cap.
But this year Gov. Schwarzenegger doesn’t seem to be bothered by the rate of growth. Though some of the increase in spending is from the sensible debt prepayments, most of it will go towards general program increases. With the exception of the Resources, Environment Protection, and State and Consumer Services Departments (each with budgets under $2 billion) every state department will see increases that outpace the estimated 6.2 percent growth in California personal income.
According to a study by Harvard economist Robert J. Barro, “the ratio of real government consumption expenditure to real GDP had a negative association with growth and investment.” This means that a jump in government expenditures relative to personal income will eat into California’s economic growth. And a dip in California’s economy will mean a decrease in the rate of tax revenues, and potentially even bigger deficits.
The governor should be applauded for making sure the state pays its bills ahead of schedule — but he needs to reaffirm his commitment to reducing the overall growth in government. Only by slowing the rate of expenditures will California continue to see a healthy economy and balanced budgets.