The Unserious State

MAY 31, 2010

The Australian radio announcer interviewing me last week about the dreadful state of California’s budget and economy wanted to know what she would find if she landed at LAX and drove around the state. It’s not like “Blade Runner,” director Ridley Scott’s 1982 film depicting a dystopian future in Los Angeles. She would find everything always found in California – gleaming hillside mansions, well-kept tract houses, bustling shopping malls and busy freeways. California is the same place we know and love, despite the structural budget deficits, the neglected infrastructure and the high rate of joblessness.

There’s nothing wrong here that a serious bout of sensible public policy couldn’t fix. Legislators need to get control of their spending addiction, tame the public sector unions and reform the pension system, rein in the power of regulatory agencies, divert more of the state’s budget to infrastructure rebuilding, revamp the tax code, embrace policies that encourage businesses to locate and expand here, and so on. I can be more specific, but why bother, given that no one in power would listen?

None of those reforms would take any great imagination, but to implement even some of them would take a level of seriousness that has not been seen in California in several decades. Now that revenue is far lower than before, unemployment is above 12 percent, and pension debt has, by one estimate, hit a half-trillion dollars, California is desperately in need of statespersons (to be PC about it), who are willing to stand up to special interest groups and do what’s right for the state.

Seriously. I can almost hear you laughing, which testifies to the mess we are facing.

Yet at this crucial hour, California’s legislators – mainly, the state’s majority Democrats – have devolved into a level of infantilism that almost is unfathomable. California’s governor announced a May budget update that did the only realistic thing he could do – cut programs. Outraged at the cuts, the state’s Democrats responded last week with their plan to “fix” matters.

As Assembly Speaker John Perez, D-Los Angeles, explained, “In order to maximize the immediate impact from creating and protecting jobs, the Jobs and Economic Stability Fund borrows $8.7 billion from the California Beverage Recycling Fund and, similar to the governor’s plan, $500 million from the Disability Insurance Fund. An Oil Severance Tax, required by law in every other oil-producing state – including Texas and Alaska – will generate $900 million in 2010-11 and billions more each year for the Jobs and Economic Stability Fund.”

As one of Perez’s union allies touted the plan, “There is now broad agreement that it is time to come together and end the sweetheart deals oil companies and other corporations have walked away with, budget after budget.”

The Assembly Democrats have decided to borrow billions of dollars from Wall Street based on some bizarre securitization scheme in the hopes that the massive loan will get us through the down economy, which is like taking out new credit cards to pay off existing debt in order to forestall the inevitable. Furthermore, Perez and company want to significantly raise taxes on those corporations that one might expect to bring in the new jobs and revenue that will help buoy a sinking state budget.

The main goal of the Assembly plan is borrow money and then raise taxes in the name of job protection – but, as the Republicans noted, the only jobs the Democrats seem interested in protecting are government jobs. The goal is keeping enough cash available to avoid layoffs and benefit cuts for public employees.

Senate Democrats offered their own plan, which includes $4.9 billion in new taxes and no governmental reform. I watched Senate Democrats recently quash a proposal to reduce the absurdly generous pension plans government employees receive. Instead, they prefer extending an income-tax surcharge, extending a reduction in the state’s dependent income tax credit, raising the vehicle license fee, suspending a job-creation tax incentive for businesses and raising the state’s alcohol tax. That last one really hurts – Californians can’t even temporarily escape the madness without paying higher taxes!

California’s legislators also have been, as I’ve reported, lobbying to get rid of the two-thirds vote requirement to pass budgets, with the obvious intent of also eliminating the two-thirds requirement for tax increases. With people such as Perez in charge, what do you think would happen if they had unchecked power to raise taxes?

Serious people would face reality. There is less money, so that means government needs to tighten its belt. Serious people would treat business owners as a core part of the California economy, not as barely tolerable potential evildoers who must be punished and controlled at every opportunity. Serious people would at least wrestle with the Schwarzenegger administration’s proposition – that pension reform is necessary in order to save programs liberals claim to support. Serious people understand that at times one must make hard choices and you can’t have it all.

But there are precious few serious people running the show in Sacramento.

It’s more fun to decry the evils of budget cuts, to applaud the nonsensical demands of purple-shirted union mobs and to call for California taxpayers to pay even more to prop up the bloated government.

Gimmicks and taxes – that’s what the Democratic leadership is offering. Individually, Democratic legislators continue to propose various “death by a 1,000 cuts” tax-increasing bills. Sen. Mark Leno, D-San Francisco, has proposed a bill that would allow counties to impose a local car tax. Assemblyman Chuck Calderon, D-Montebello, proposed a measure that would sunset all new tax-cut measures after seven years. Another bill would suspend the driver’s licenses of Californians who the state says have outstanding tax liability – just the latest heavy-handed attempt to shake more coins out of Californians’ pockets.

Of course, even tax-increasing took a backseat to California legislators’ time-consuming responses to Arizona’s immigration law. I don’t like that law because it will inevitably lead to government harassment, but you would think that the Third Reich was marching through the Southwest, given the overdramatic hearings and florid statements. Is there really time for such posturing?

As legislators harrumph, the state budget process, in the words of Sacramento Bee columnist Dan Walters, is in “utter disarray.” There is virtually no chance a budget will pass by the constitutional deadline and absolutely no chance that any substantial reforms will pass – the type of things that do more than kick the can down the road.

Again, where are the serious men and women? Where are the leaders? Sadly, you won’t find many of them in this increasingly unserious state.

–Steven Greenhut

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  1. StevefromSacto
    StevefromSacto 1 June, 2010, 10:45

    For years now we’ve been hearing that California’s budget problems exist because we “overspend.” Others claim it’s because our taxes are so high that companies and jobs move to low-tax states. Texas is often held out by those making these claims as an example of what California should emulate – a low-tax, low-services, low-spending state that supposedly has government figured out.

    Except they don’t. California faces a budget deficit of about $18 billion. And how much is Texas’s budget deficit?

    That’s right. $18 billion:

    But as the state’s budget shortfall widens-to as much as $18 billion, or about 20% of the next two-year budget, according to the state legislature’s latest analysis released earlier this month-critics are complaining that Mr. Perry’s policies have left the state with little room to reduce spending.

    “There is no way that they will be able to come up with $18 billion in cuts,” said Eva DeLuna Castro, a senior budget analyst at the Center for Public Policy Priorities, a nonprofit that advocates for low-income Texans. “They would have to shut down our prison system.”

    Suddenly Texas doesn’t look like such a great model for California. They don’t have an income tax, yet their revenues have collapsed just as California’s have. Texas spends a lot less per resident, with a much smaller level of public services, yet they are still facing a budget deficit about the size of our own.

    This news should put to an end once and for all the lie that California’s budget deficit stems from overspending, or that we should cut our income taxes to “stabilize” revenues, or that we should follow Texas’s model of low services.

    Instead what Texas shows us is that the real problem – as in Greece – is that taxes are too low, especially on the higher end of the income bracket. Higher taxes help balance the budget, sustain the services we need to attract and retain companies.

    Think that last part is nonsense? Just ask two California companies that are moving to Colorado:

    As for quality of life, “there’s less traffic, less stress, the people are more grounded here. My kids aren’t going to school where all the kids drive Porsches and Mercedes,” he said. “I should have moved sooner.”…

    One final thought from Hansen: “It’s not that we hated Orange County … We love it. But here we’re not spending our time sitting on a freeway. There are trails right by our office.”

    The OC Register article wants to make it sound like Colorado’s lower taxes were the key driver. But it sure doesn’t sound that way from the quotes. Traffic is a truly massive economic problem here in California, causing lost time and lost money. Had these business owners not had to deal with traffic, because we’d spent our money building alternatives, they may well have decided to stay, since they clearly enjoyed life in the OC.

    Most decisions made by companies about where to locate their businesses don’t revolve around taxes. Cost of living, ability to recruit and retain skilled employees, quality of local schools, infrastructure, and other similar issues tend to dominate the list. Since California has systematically starved those services of revenue, it’s becoming harder to create the jobs that will produce recovery.

    What we’re seeing is the “Texas is better” model proven to be the lie that it is. California should look to the model of Pat Brown, who understood that investment in our state’s services, schools and infrastructure produced prosperity, for the way out of our budget and economic crisis.

    Reply this comment
  2. EastBayLarry
    EastBayLarry 1 June, 2010, 16:45

    SteveFromSacto:
    Let’s just look at the bottom line, the state is spending more than 100% of its’ income.
    When a family has this problem the choices are reduce spending or increase income or both.
    Increasing income can be problematic. Do you get a second job, a better job or demand a raise? In times of a troubled economy, none of these may be viable.
    However spending can always be reduced. You don’t really NEED to go out for dinner, and there are probably economies that can be made for dinner at home also. A chicken dinner can be just as satisfying as a steak dinner and cost less than half as much. Other ‘non-critical’ spending can be reduced, postponed or even eliminated.
    So you review your current expenses and see what can be cut.

    Reply this comment
  3. Bradley J. Fikes
    Bradley J. Fikes 1 June, 2010, 19:57

    According to StevefromSacto’s own source, Texas’ deficit of up to $18 billion is calculated over a two-year period. That’s an annual deficit of up to $9 billion. California’s annual deficit is more than twice that large.

    Reply this comment

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