Brown tips his hand on taxes

DEC. 12, 2010

At Jerry Brown’s briefing Wednesday to discuss the dismal condition of the state budget, now plagued by a $25 billion deficit, the incoming governor said, “Everything should be on the table, and everyone should be at the table to talk about it.”

Whenever a California Democrat tells you that everything is on the table when it comes to budget matters, you know the main course will be your earnings. All those people invited to the table are the interest groups and public sector unions who will fight over the additional dollars from the tax increases being sought.

Brown’s briefing was billed as a reality check, a chance for state officials and the public to face the ugly truth about the budget. The goal wasn’t to discuss solutions – although legislators in the audience offered their “solutions” during the question-and-answer session – but to “set a common factual basis” from which we can determine the “full range of solutions,” Brown said.

We should all agree on the right numbers, but we shouldn’t be naïve about the goals here.

Brown did not in any way push for tax hikes, but the whole presentation was designed to lead the public to believe that every other budget choice is no longer available. The briefing explained that the budget problems are enormous, that services already have been cut to the bone, that the state cannot afford more borrowing and that the usual budget-balancing gimmicks won’t work this year. The presentation was filled with truths, but the likely conclusion is highly objectionable. And it left out other significant truths that would lead to other conclusions, such as data showing that Californians are taxed and regulated cumulatively at among the highest levels in the nation.

The panel included Democrats Brown, Senate President Pro Tem Darrell Steinberg, Assembly Speaker John Perez, Treasurer Bill Lockyer and Controller John Chiang. The sole Republican was Assembly Minority Leader Connie Conway. The two nonpartisan budget officials were Legislative Analyst Mac Taylor and Ana Matosantos, the finance director for outgoing Gov. Arnold Schwarzenegger who is being retained by Brown.

Only Conway challenged the direction the panel was headed, noting that the best way to increase revenue is to get the economy moving and to get more workers on the payroll and, thus, the tax rolls. Steinberg and Perez kept asking questions, which were mini-speeches, pointing to the plight of government workers, the need for more services and the importance of – let’s say it together now! – keeping all solutions on the table. Perez even mentioned specific tax increases he would support.

Ironically, Perez compared the briefing to the Assembly Democrats’ series of town-hall meetings last May. They also were supposed to elicit public debate about the budget but were really a transparent ploy to lobby for a rule that would allow state budgets to pass by a simple majority rather than a supermajority. That rule (Proposition 25) was approved by voters in November. It will make it easier for Democrats to pass the budget and to push for tax increases.

Yes, the briefing did remind us of the state’s precarious financial position. For instance, the governor-elect’s presentation emphasized that “absent permanent solutions, deficits will persist for years.” That’s a key point, given that legislators from both parties have avoided tough decisions every budget season. Given that California has the worst credit rating of the 50 states because of its structural deficit, per Lockyer’s presentation, this situation cannot go on endlessly.

Lockyer noted that the state’s debt has increased from $34 billion to $91 billion in eight years, and debt service in six years has gone from about 2.5 percent of the general-fund budget to nearly 6 percent. And, if you’re not scared yet, there is still nearly $50 billion in authorized but unissued bonds, thanks to California voter initiatives and the Legislature.

Chiang detailed how hard it is to keep enough cash on hand to pay the bills. Brown pointed to massive financial problems that aren’t even part of the general fund equation, such as the state’s $100 billion to $500 billion unfunded pension liabilities and the $10.3 billion deficit in the state’s unemployment benefits fund.

Brown’s presentation reminded us that it will take several years for a full recovery, which echoes the points made recently in Chapman University’s economic forecast. In other words, there’s no way for the state to grow its way out of these fiscal problems. The short-term assumptions legislators used to pass “balanced” budgets materialized only 15 percent to 25 percent of the time, according to the briefing. Obviously, most budgets in recent years have been frauds.

But Brown showed his hand as he got toward the end of his presentation. It included a chart showing that California is the fourth-lowest state in its number of state employees per 10,000 residents. The other chart shows that California is ranked around the bottom in its school pupil-to-staff ratios.

The goal of these charts was to show that the government already is lean and shouldn’t be cut, but the obvious conclusion is that although California pays so much for government services, it has precious little to show for the spending. We pay among the highest salaries to teachers, and yet we have such a high pupil-to-teacher ratio. Recent studies show how poorly the state’s education system is doing, with drop-out rates unconscionably high in urban districts.

Add this not-so-subtle “we can’t cut any more services” message to the other briefing messages – the state can’t endure more debt, the economy isn’t coming back soon, and the age of gimmicks is over – and it’s not hard to get to the only real “solution” that Brown and Co. want left on the table: higher taxes. We’re in for a long ride.

–Steven Greenhut