California Focus: End Recurring Budget Deficits

Limits on the money California spends and collects would force prioritizing

Everyone loves a silver bullet; the simple and easy solution to a tough problem. Gov. Arnold Schwarzenegger’s silver bullet is a 10 percent across-the-board budget cut he hopes will erase the $16 billion deficit. If only it were that simple.

Don’t get us wrong, budget cuts, like the one Schwarzenegger’s proposed, are often political minefields even though every government department could manage to trim 10 percent of costs and still do its job. Improved efficiency and accountability should always be the goal, and the governor’s cost-cutting makes great sense as a strategic management initiative. But the big picture shows California is constantly buried under multibillion-dollar deficits, not because departments are spending too much each year, but because the budget is structurally flawed, and no one wants to make the hard decisions that will provide lasting improvements.

Gov. Schwarzenegger said, “While these reductions present numerous challenges to implement, this across-the-board reduction approach is designed to protect essential services by spreading reductions as evenly as possible so that no single program is singled out for severe reductions.”

In other words, every single program the state spends money on is just as important as every other. That simply isn’t true. The Board of Barbering and Cosmetology is not as important as the Highway Patrol. The cosmetology board should be eliminated, not cut by 10 percent. The Acupuncture Board, Credit Union Advisory Committee and Registered Veterinary Technicians Committee are just a few of dozens of other boards that taxpayers shouldn’t be funding – at all.

The seemingly forgotten 2,500-page California Performance Review identified $32 billion in potential budget savings, calling for the elimination of 117 of the state’s 339 board and commissions, restructuring agencies to eliminate overlap, selling unneeded state properties and other reforms that still make sense. Gov. Schwarzenegger’s ill-chosen battles with special interest groups doomed the report from the start. And as a result, Gov. Schwarzenegger’s budget deficits today are eerily reminiscent of the red ink that led to the recall Gov. Gray Davis. Under both men, the state has failed adhere to kitchen table economics, to prioritize the way families do.

When California’s families face tough financial times, we don’t cut our food or health care spending by the same amount that we cut our movie outings. We prioritize, making big reductions in areas like entertainment, while continuing to pay the mortgage and electricity.

As the mortgage crisis worsens, you see many families who bought a second home as an investment property selling those houses because they can’t afford two mortgages right now. With a $16 billion deficit, the state should be doing the same. The government owns property, worth billions of dollars that it has no need for or intention of using, including golf courses, stadiums, prime commercial real estate and the notorious MTV beach house.

Monetizing assets the state owns, but does not need, is a fairly quick means to reduce the short-term budget gap. That would buy time for the state’s leaders to prioritize state programs, reducing spending on programs that are lower priorities and helping prevent future budget shortfalls.

For the long-term health of the state, Schwarzenegger has rightly pointed to the need for a state spending limit and rainy-day fund. Tax revenue has been extremely volatile in recent years. California saw revenue spike during the dot-com boom. Then came a bust. California saw revenue spike again thanks to a historically hot real estate market. Then came another bust.

The core of the problem is that nothing forces the governor and Legislature to keep spending in line with revenue. California has passed various reforms, such as the Gann Spending Limit, but the Legislature always finds ways around them.

California desperately needs a tax and expenditure limit to protect taxpayers from tax increases and to serve as a method of imposing some restrictions upon Sacramento’s spending. A revenue limit would cap the amount of money that the state could collect in taxes to, say, a percentage of population growth and inflation. If the state collected too much money in a year, taxpayers would get refund checks instead of allowing politicians to spend the ‘excess’ money, as happens today.

Consider that during fiscal 1997-2002, California’s state revenue increased by 27 percent. Yet, the state still ended up with a $30 billion-plus deficit because spending increased 36 percent during that time. During Gov. Schwarzenegger’s tenure spending has gone up another 36 percent.

Until there are some real, binding limits on state spending and revenue, California will keep finding itself in a budget mess every few years. Spending and revenue limits force state leaders to prioritize and to make hard choices the same way families do during a fiscal crisis. It is time for our current leaders to bite the bullet and face some of those tough choices they were elected to make.