California’s Has a Structural Revenue Shortfall, Not a Spending Problem

[courtesy of California Progress Report]

$12 billion cut in annual taxes leaves state without enough money to pay for basic services

By Robert Cruickshank

If you tuned into my appearance on Wednesday's "Which Way LA?" show, you heard me discuss a "structural revenue shortfall" - that since 1978 California has simply not generated enough money to pay for its basic services, from public education to transportation to water. I thought I would expand on that concept this morning, and explain in more detail exactly what I mean by it.

Arnold and the Republicans would have us believe that our budget deficit is caused by overspending in the "good times" that leaves us with huge shortfalls when the economy turns sour. But there isn't $16 billion in "overspending" and Arnold knows it, as proved by his $4 billion cut for California public schools. Others claim that the problem is locked in and/or frivolous spending - but here again, that only accounts for a tiny fraction of the massive deficit total.

No, the real problem is that since 1978 this state has cut nearly $12 billion in taxes on an annual basis. This was done during economically prosperous periods, particularly the 1990s. And that lack of revenue has piled up over the years - the state has fallen further and further behind to the point now that our state's governor is seriously proposing ending public education as we know it.

Most of the information in this examination comes from the California Budget Project - of whom I have become a huge fan - and specifically their report Two Steps Back: Should California Cut Its Way to a Balanced Budget, released earlier this month. The report is a devastating indictment of this state's addiction to tax cuts, an addiction that now threatens our ability to function as a modern society.

We have a structural revenue shortfall - in other words, since 1978 we have not raised the money we need to keep our schools, parks, hospitals, and roads open and in good working order. We have instead preferred to waste our money on tax giveaways for a few people while middle- and working-class Californians get stuck with higher costs for lesser services. As we face new crises, such as climate change, the need for public investment is that much greater - and the structural revenue shortfall makes it even more difficult for us to adequately respond to these needs.

Let's look at the specifics. When we talk of a structural revenue shortfall, most people immediately think of Prop 13. As we explained back in January, Prop 13 was a radical solution to a temporary problem. Conservatives ensured that not only would the state not have enough money to pay for its basic services by slashing property taxes and then severely limiting the ability to raise them (or any other tax).