Once Again: California's Budget Crisis Isn't a Spending Crisis

by Robert in Monterey [courtesy of Calitics - Front Page]

Last fall I took the LA Times to task for framing the state budget crisis as a problem of "automatic" spending, and not being sufficiently attentive to the structural revenue shortfall that is the true cause of the budget problem.

While the LA Times has shown some improvement - George Skelton's column today is mostly if not completely on target and the incomparable David Lazarus always has some good insights - the rest of the state's media seems slower to follow.

Take, for example, Sunday's SacBee column from Daniel Weintraub, California  Budget 101: What went wrong, when. Weintraub's column purports to be a "a fuller explanation of the dimensions of the problem" - but winds up repeating the same discredited arguments, namely that this is primarily a spending problem:

But the economic issues only worsened a basic, structural problem in the state budget: Spending is programmed by law to grow each year at a rate that is generally faster than tax revenues can match. Current state law would push general fund spending to $113 billion next year if nothing is done to slow it, according to the Schwarzenegger administration. Revenues, meanwhile, are projected to decline further, to about $95 billion. The budget Schwarzenegger celebrated last summer would have bridged the gap for one year at best.

Weintraub then goes on to detail the education, health care, prisons and transportation spending that makes up that growth. But nowhere in his column would you see the following:

• Tom McClintock and Arnold Schwarzenegger's $6 billion VLF cut
• Another $6 billion in tax cuts made to the state budget after 1993
• And of course, the start of the state's budget problem: Prop 13.

In other words, Weintraub makes it sound like the state is in a budget crisis because it is overspending, instead of because it is undertaxing. This is especially important when we consider what the state has been spending on - education, health care, and transportation - the very things California needs to remain competitive in a globalized 21st century economy.

The aforementioned George Skelton column provides an excellent contrast, showing what a more accurate explanation of our budget problem would look like:

People, one place it [additional spending under Arnold's administration] went was for Schwarzenegger's car tax cut. Yes, that tax cut counts as spending -- about $6 billion annually. It's because revenue from the car tax -- the vehicle license fee -- had gone to local governments, not the state. The governor generously agreed to replace the locals' lost revenue with money from the state general fund. But he never replaced the tax he grandiosely whacked. Big hole. Big mistake.

Even Dan Walters, the dean of California conservative columnists, has recognized the role tax cuts have played in the budget shortfall:

The 2000 decision to spend most of a one-time, $12 billion tax windfall on permanent spending and tax cuts that could not be sustained, leading to the state's chronic budget deficits, is another [wrongheaded move].

And to his credit, Walters has argued for higher taxes, although as part of a holistic budget reform package that contains some problematic ideas.

The fact is that if we are to finally end 30 years of budget crisis, we have to find new revenues. The notion that any new taxes cripple economic growth is absurd - both California and the federal government hiked taxes between 1990 and 1993 and it didn't prevent the 1990s economic boom. The investment in education and mass transit helps create more investment while saving commuters, students, and workers money; and universal health care (or even a modest expansion of government-provided care) creates significant savings for businesses and employees.

A focus on spending, however, blinds us to the structural revenue shortfall and leads Californians and their politicians to assume the only way out is to slash spending - which would make the cost of doing business in California, and the cost of living here, significantly higher.

Without solving the revenue problem, we will never cure this chronic budget crisis.