I am going to make two predictions – one about the California economy, and the other about the projections for future revenues coming into state coffers. Hold onto your seats here folks, because what I am going to say it going to shake the very underpinnings of your understanding of state finances
California legislative Democrats, are you reading this?
Prediction #1 – The recession is getting worse, not better. At a time when the public sector should be shrinking so that as much burden as possible can be lifted from a struggling private sector can recover and turn around the state (and national) economy – public spending is up. In Washington, D.C., Democrats seem to be crazy-drunk in their spending orgy, telling the public that more government spending is going to actually help the economy. Not. Of course, as the economy continues to sputter, this will continue to have a detrimental impact on the various taxes and fees that provide the income stream for state government. We’ve already seen a huge-drop off in state and local government revenues – and there is no reason that such a contraction will not continue has severe belt-tightening takes place in the private sector. And with California’s tax structure being overly dependent on the state’s top income earners (who are being particularly hard hit by this recession), the situation is only exacerbated.
Prediction #2 — The state will have less money to spend than is predicted currently by the Finance Department or by the Legislative Analyst’s Office. I would submit to you, as proof that this prediction will be correct, the fact that every time these folks set out to make their case for what future state revenues will be, it ends up being worse. Every time.
As part of the Governor’s rather sober series of proposals to ratchet down state spending to meet anticipated revenues, and take into account the fact that things are not likely to get better, but rather continue to get worse, the Governor has included a $4.5 billion “rainy day” reserve – and as the Governor has said – it’s raining right now!
Yesterday Democrat Leaders in the State Capitol announced that they would slash the Governor’s proposed reserve to virtually nothing and use those funds to preserve existing spending priorities.
I respect liberal ideologues. I do not agree with their priorities – but I understand where they are coming from. When you talk about the most extreme of the proposed cuts by Governor Schwarzenegger, you are talking about reducing the “safety net” to such a low level that many on the left would actually call the cuts “immoral” and an abrogation of a necessary “social contract” between people and their government. Of course, they are nuts, these liberal ideologues. The kind of Cold War era European socialism that is espoused by these extremists (helped along by the labor unions of public employees) has led us to the point where we are now – which is a state government that is too large to be sustainable. And if pressed over a drink at Simon’s in downtown Sacramento, they would tell you that the commitment of California government towards those “less fortunate” is still woefully inadequate.
When you look into the Democrat legislative “snow globe” and gain this perspective of where these ideologues are coming from, then it is not hard to understand why they want to do anything and everything they can to avoid “right sizing” California government spending to meet available income.
Their proposal, unveiled yesterday, to slash almost entirely the proposed $4.5 billion reserve that the Governor has proposed for the budget, and have no emergency funds available is predictable, but extremely irresponsible. The Governor didn’t propose that reserve because he wants to slash state spending by that much more (I do, but I am the ideological idealist on the right, he’s much more moderate) – the Governor proposed a reserve because he knows that you will be able to take the predictions I made above to the bank – the economy is getting worse, not better; and there will be less revenues available for state government next year than is being predicted.
Preparing for worse times ahead is not easy – even in times of plenty. Now, with resources more scarce, it is even harder. Saying that this proposal by Democrats to raid the proposed budget reserve to maintain ongoing programs is playing “kick the can” is almost too colloquial. It’s quite irresponsible. A prudent reserve and needed structural reforms are both necessary components to successful efforts by state policy makers to actually get a handle on this immense problem.
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