Taxes, Spending and the Folk Tale of a Balanced Budget

... or How to fix California, Step Two

Overwhelmingly Californians voted to mandate a balanced budget in 2004. With Proposition 58 we forced the legislature to pass a balanced budget, gave the governor the authority to declare fiscal emergency initiating a special session of the legislature to work on the budget (and only the budget if it takes enough time) and we established a “rainy day” fund to deal with revenue shortfalls to budget spending. The fund was created by another proposition (57) via long term borrowing, previously forbidden by our constitution. Government spending, as it were, was out of hand and we had record deficits for which we had been using high interest, short term loans to cover. If we didn’t close the budget gap, with 57 and 58, we were told we would have to face some unprecedented cuts in education, social and health care services. Again, this was in 2004.

Fast forward to 2009. The governor twice used his authority to declare fiscal emergency in 2008 alone. Spending, which was not capped by Prop. 58, is still out of control as California is facing $24B deficit, having used high interest short term loans to close recent budget gaps. Ready for the ta-da? We are also staring at unprecedented cuts to education, social and health care services to close the budget gap and comply with constitutional requirements of Prop 58. Ta da! Our so-called balanced budget initiative apparently contained some glaring omissions that have left us absolutely, bona fide broke.

The argument always sounds so simple: Why can’t Sacramento live within its means? No more taxes! Why should we borrow to close the budget gap? No more taxes! We can’t let the gays get married because it would be bad for business. NO MORE TAXES!!!

The problem with our attachment to a “balanced budget” per se, is that we have attached ourselves in a short-sighted and very complicated way. In 2004 no one in California even raised the possibility of a deep recession decimating the state’s revenue. Couple that with the fact that a state isn’t a single family home but one gigantic extended family and you have yourself a real problem. Why can’t Sacramento live within its means? Because it has a job to do! It has workers to pay and a populace living in poverty for whom it must care. Legislators and the governor did nothing in the time between 2004 and now to substantially grow revenue or create new streams. So when the proverbial shit hit the proverbial fan, our spending capabilities were literally screwed. They didn’t just add Direct TV and a plasma screen to the monthly bills, they were paying for health care and teachers and emergency services. Now the governor’s proposed cuts to said services are more than a “shared sacrifice.” That’s an understatement. No. The governor’s proposed cuts are a shredding of the social contract between a government and its people. They are a “fuck-you-yer-on-yer-own” to all Californians.

To avoid the borrowing mess, California needs new and better revenue streams. We need to scrap our tax codes (in concert with the tax specific articles in the constitution) and start anew. Prop. 13, the greatest tax revolt in American history, handcuffed the state’s economy shifting the tax burden to income, sales and small business. With property values peaking over 300 times what they were in 1976, even a moderate increase in property taxes would be a tremendous boon to revenue, though I doubt values would have ever grown as much having a property tax system similar to a state like Wisconsin or Oregon.

How to fix this situation:

• Unshackle the legislature. Remove the two-thirds requirement to pass tax updates and budgets. Completely rewrite the tax code to make property taxes more sensible to modern property valuation. Ease the burden on small business, incomes and sales. Make the oil companies (qua big business) pay their share for doing business here.

• Give the gays the marriage. Forbes estimates that if only HALF of the nation’s same sex couples married, as estimated in a 2005 to 2007 census study, it would represent a $9.5B windfall to the national economy. That figure is even based on same-sex couples spending on the average of 34% of what a straight couple spends. Sorry, Michael Steele, no one is buying what you are selling. Gay marriage is GOOD for the economy.

• Legalize it. Take the profits out of the hands of criminals. Create jobs with a cash crop industry that grows readily throughout the state. Tax production and consumption. Create a fine structure for illegal users and allow legal users to remain free consumers adding to the state’s economy.

• Stop the “balanced budget” lip service. A balanced budget would be great. A budget surplus would be better, but let’s not get ahead of ourselves. The current budgetary process does not lend itself to a balanced budget, however. Legislators have neither the leeway nor experience (with term limits) to consider the long term affects of their work in Sacramento. Giving legislators real tools (like the ability to even PASS a budget or act effectively in times of economic downturns without drastic cuts) and time to gain the proper budgetary expertise would be a step away from the reactionary politics that have dominated California tax initiatives and budget discussions since the mid-1970’s.
  

• Blow up the Initiative Process. I’ve said it once and I’ll say it again. The “reactionary politics” mentioned above are the ballot initiatives that got us into this mess in the first place. So far I have mentioned only four: Prop. 13, Prop. 58, Prop. 140 and Prop. 8. These were either uninformed citizens promoting a very narrow agenda or state legislators, with little support from their peers, turning to the uninformed citizens to do their dirty work. In either case a vital legislative methodology was usurped to the overall detriment of California. I’ve read the websites and the blogs about how good each of the above initiatives have been for us, but I remain unconvinced. Their stories seem incomplete to say the least. The fact remains that our budget is still out of whack and if the governor succeeds at destroying the social contract, then we are worse than we were more than thirty years ago.

A balanced budget will require cuts in spending but more than that it will require putting a lid on spending. It also requires new revenues and a backup plan for a tanking economy. We need to revise our short-sighted view of the tax structure so that when we cut, we don't redefine the role of government. If revenues unexpectedly fall, we should allow borrowing to accomplish the goals of our government but look to supplement ailing revenues with new ones and require future surpluses (due to new revenue streams) to pay down debt. Call me an idealist, but hey! this is my blog.

So concludes the two-part series of How to Fix California. There is much more to be done for sure, revising term limits for example. But most of that is addressed in the call for a constitutional convention. I hope readers have visited sites like Repair California, if for no other reason than to get their hackles up that something, SOMETHING needs to be done. I've offered a couple heavily layered steps that fall into two categories, which align somewhat with groups like Repair California: a) repair the constitution and b) repair the tax code. I had planned a third: give the legislature their balls back, but ultimately that thought fit into the previous two so we'll leave it at that.