In today’s column in the LA Times, George Skelton points to Governor Schwarzenegger’s decision to cut the car tax in his first day in office in 2003 "forced [Governor Schwarzenegger] into the budget box he found himself in Friday." Skelton also cited borrowing $15 billion to pay off the accumulated Gray Davis debt as another reason. He later cites other things, which I will address later, but I wanted to address these two first.
Let’s look at the numbers again, just to reiterate the impact of the car tax cut on state revenues. The day the car tax was first cut in 1998, total state revenues were $57 billion (Schwarzeneggger’s cut restored the rate to its 1998 level). Today, those revenues are $84 billion, a $27 billion increase in revenues. The total amount of the car tax cut, even assuming the cut had no positive impact on state revenues (by increasing private sector growth, and therefore increasing revenue) was $5 billion. It is simply illogical to conclude this $5 billion reduction in taxes, and not the huge increases in welfare, education, state government and government health care spending, from $57 billion to over $102 billion, caused the state budget crises.
In Schwarzenegger’s first full year’s budget, the 04-05 budget, revenues jumped from $76.7 billion (in 03-04) to $82.2 billion in 04-05, then to $93.4 billion in 05-06, $95.4 billion in 06-07, and $101.2 billion in 06-07. When the car tax was cut in 1998, revenues increased from $57 billion to $79 billion in 2000-01. In all, as long as the car tax was cut, revenues increased over $44 billion. When the car tax was increased in the current budget, revenues drop precipitously, from the $102 billion in 08-09 to an estimated $84 billion this year and $88 billion next year. What "choices" caused the Governor’s current dilemma? I would argue the car tax increase in this year’s budget, not the car tax cut in 1998, and the restoration of the cut in 2003, caused the current crisis, and the numbers bear me out.
As for the borrowing in 2004, I would tend to agree with Skelton, but not for the reason he would think. In the 03-04 budget year, to avoid $11 billion in spending reductions, the state borrowed money on a short term (one year) basis to get through that difficult time. Schwarzenegger simply renegotiated that loan to a long term loan, so rather than pay off that $11 billion in the 03-04 budget year, the loan could be paid off over the next 20 or 30 years. I voted in favor of that renegotiation, but in retrospect, I should not have. If the state had used the revenue increases of the next 3 years to pay off the Gray Davis debt, it would not have increased spending on the various state programs as it did. That was the choice Pete Wilson made in 1995, pay off the debt out of current revenues, a decision that limited spending on programs over the next three years. Schwarzenegger chose differently. In Schwarzenegger’s defense, no one could have predicted in 2004 that revenues would increase by over $23 billion in the next five years, and more than pay off that $11 billion debt, but had Schwarzenegger made that choice, Skelton, along with his Democrat friends in the Legislature would have screamed bloody murder at the thought of using current revenue to pay off past debt.
Skelton has, over the years, been one of the chief cheerleaders of the Democrats spend and tax policies. He has never met a tax he didn’t like or a spending program that didn’t deserve to be fully funded. It has been this mindset that has led to the current budget collapse, not the Republicans’ anti-tax attitude or the car tax cut, or, quite frankly, even the Governor’s failed 2005 initiative drive. The Governor’s major problem has been his timid approach to dealing with the Democrats, who would drive this state into bankruptcy to serve their government employee union masters. Schwarzenegger figured out, too late it is now evident, that the Democrats care little about the fiscal soundness of the state. He got suckered into feeding the government beast, by aides and others who counseled him to "be reasonable." His reasonableness cost him his good name.
That is truly unfortunate. Schwarzenegger started out right, and then got lost in the political rhetoric, which he allowed to cloud his own good judgment. That is what cost him his legacy.