State's Ongoing Nutty Budget Battle

[1]The following first appeared in the City Journal[2] California.

JUNE 20, 2011

By STEVEN GREENHUT

Watching the California budget drama unfold reminds me of the “Seinfeld” episode in which George Costanza pretends he has to sign papers on a house he’s leasing in the Hamptons as a way to skip a meeting of a foundation started by the parents of his late fiancée. The parents know he has no such house, and George knows that they know. Yet they all decide to make the two-hour drive to see it. “Once you get in that car, we are going all the way . . . to the Hamptons,” George says. “All right, you wanna get nuts? Come on. Let’s get nuts!” Well, California’s budget situation is about to get nuts.

Just how nuts became a little clearer on Thursday, when Governor Jerry Brown vetoed a gimmick-laden budget that seemed to exist solely to ensure state legislators would get paid. “Unfortunately, the budget I have received is not a balanced solution,” Brown wrote in his veto message. “It continues big deficits for years to come and adds billions of dollars of new debt. It also contains legally questionable maneuvers, costly borrowing, and unrealistic savings. Finally, it is not financeable and therefore will not allow us to meet our obligations as they occur.”

Brown’s veto is further proof that piecemeal reforms aimed at forcing legislators to behave in a fiscally prudent manner are mostly a waste of time. The legislature faced a June 15 deadline to approve a budget. Under Proposition 25, a good-government initiative that voters approved last November, legislators may pass a spending plan with a simple majority, rather than a two-thirds vote, as long as the budget doesn’t include tax increases. Prop. 25 also includes a provision, intended to appeal to rising populist sentiment in the state, which would permanently strip legislators of their per diem pay for every day they fail to pass a budget on time. This caused real consternation in the capitol. According to one Democratic legislator I spoke with, 80 percent of lawmakers live paycheck to paycheck. Any deal, even an atrocious one, had to be better than foregoing a salary, apparently.

Bogus Projections

Richard Rider, chairman of the San Diego Tax Fighters, described[3] the failed budget as “a particularly imaginative piece—a disjointed combination of bogus revenue projections, even more accounting gimmickry, illegally passed tax increases and sources of revenue that this same Legislature was bound to reject when the follow-up bills came before them (such as selling state government properties). Brown did the only possible thing he could—he vetoed the mess.” Some of the “imaginative” elements included a legally dubious increase in the vehicle-license fee; the deferment of $3.4 billion in state payments to community colleges and universities; an effort to take $1 billion from early-childhood-development commissions; and an “Amazon tax” aimed at collecting use-taxes from online retailers, which may not pass legal muster. The budget also would have raided the state’s reserve fund and cut money from the state courts.

The budget package did include two trailer bills that would put an end to, or at least significantly curtail, redevelopment[4] agencies and save the state $1.7 billion. Both bills passed with some Republican support, and Brown might sign them separately. But no other silver linings came out of the legislative budget effort.

While the governor slammed the Democrat-created budget monstrosity, he reserved his harshest words for Republicans, who continue—in his view—to deny Californians the right to vote on a series of tax extensions that lie at the heart of his fiscal plans. “If they [Republicans] continue to obstruct a vote,” Brown said Thursday, “we will be forced to pursue deeper and more destructive cuts to schools and public safety—a tragedy for which Republicans will bear full responsibility.” As recently as last week, it looked as if the governor might persuade enough Republicans to back a vote on extensions. But the widely rumored deal, always denied by Republicans, fell apart over the Democrats’ insistence that the GOP support a “bridge”—the continuation of the higher taxes until the special election takes place this fall. That proved a bridge too far for Republicans.

No Reform Ballot

The governor refuses to place any reform measures on the same ballot. Apparently, the public has a sacred right to vote on tax hikes, but not on anything else. Republicans are rightly frustrated about that stubbornness. “Senate Republicans provided Governor Brown and the Democrats a pathway to a bipartisan budget solution that would have allowed voters to decide on taxes, meaningful pension reform and a hard spending cap,” said Senate Republican Leader Bob Dutton after the veto. “On March 25, Governor Brown said no and broke off budget negotiations with Republicans. Senate Republicans will continue to fight for reforms that will heal the economy and put unemployed Californians back to work.”

Even if the governor gets his vote on tax extensions, there’s little chance that they will succeed with voters, who have shown a waning appetite for them. A recent Field Poll found slightly more than half of respondents favored Brown’s tax proposals—down from more than 61 percent in March. Even some of Brown’s labor allies sound skeptical about the governor’s special-election plans. “It’s my members’ money,” explained David Kieffer, executive director of the Service Employees International Union California State Council, in an interview[5] last week with the Sacramento Bee. “And if I went to my members and my board and said we can either play heavily and do good politics in 2012, or we can lose an election with this money, I think I don’t even have to pose the question to get the answer.”

It’s hard to see where California’s budget mess will end, but it’s a fair bet that things will get nuttier before they get better.