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Reason Foundation

San Francisco Chronicle

CA State Deficits: The Day of Reckoning Is Here

Spending must be controlled

George Passantino
December 22, 2003

When an average family confronts car repairs, braces for the kids or a broken dishwasher, credit cards can provide a useful short-term bridge. But they do not work over the long haul to deal with mismatches in spending and income. In fact, relying on credit is a recipe for disaster.

Much in the same way, borrowing may be a necessary tool for Gov. Schwarzenegger and the Legislature as they confront California's ever-growing budget crisis, but only if that borrowing is pursued in conjunction with steps to tackle longer-term spending challenges.

California faces an immediate cash crunch, much like the family that, after paying to replace the transmission on the minivan, realizes that it does not have enough cash to pay all the bills. But we also face a structural deficit, much like the family that routinely spends more than it earns and, in the process, racks up a ton of debt.

It is painfully shortsighted for a family facing both a short-term cash crunch and a longer-term spending imbalance to focus solely on getting to next month.

By the same logic, it is foolish and shortsighted for Sacramento to focus on just getting us through the deficit looming over the new budget to be released in January, estimated at around $14 billion. (That's over and above the $15 billion in past debt the governor hopes to take care of through voter- approved bonds.)

Sadly, this has been the path pursued by state government over the past several years. Rather than attempting to tackle the longer-term imbalance, elected leaders in Sacramento have found ways to get to the next payday whether through borrowing, raiding local governments, or instituting accounting gimmicks.

Recently, Gov. Schwarzenegger's Finance Director Donna Arduin described California's budget woes in stark terms. Over the past five years, the state has spent $23 billion more than it has received in revenues. And this river of red ink continues.

If state spending is left on autopilot and revenues hold to their projections of modest growth, California will have accumulated $62 billion in deficit debt by 2006.

This year, revenues are projected at $72.9 billion and spending at $77.2 billion.

Next year, according to Legislative Analyst Elizabeth Hill, spending will increase to $85.7 billion, and it will continue to climb to more than $96 billion by 2006. By then, revenues will only be $85 billion, meaning an $11 billion gap between spending and revenue.

California needs to confront the reality that we are spending more than we take in every year.

What can we do about it?

For starters, just like the family coming to grips with the painful realization that its spending and income are out of whack, we need to understand that this isn't just a bad month or year, it is a lifestyle.

There are a number of constitutional spending-limit proposals that would help curb the state's expensive lifestyle.

Californians need to ask themselves what services it expects from state government and then focus on providing them.

For instance, California state government owns over 194 million square feet of space in more than 22,000 buildings on 2.5 million acres of real estate, including San Francisco's own Cow Palace. Being in the commercial convention centers and fair business probably is not a core mission of state government.

It is easy for leaders in Sacramento to stick their heads in the sand about fundamental reform and focus solely on getting to next month. Unfortunately, this family in the Capitol is mired in debt and needs to confront the fact that its spending and paychecks do not match.

George Passantino is director of government affairs at Reason Foundation. He served as a director on Gov. Arnold Schwarzenegger's California Performance Review.


George Passantino is Senior Fellow


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