Tom McClintock

Mr. McClintock is an expert on matters of the State budget and fiscal discipline. He is a Senator in the California State Legislature and ran for Governor in the 2003 recall election. His valuable website is found at www.tommclintock.com [McClintock index]

the Shadow Governor
Piling on More Debt
The state is $6.5 billion more in the red...
[Tom McClintock] 3/10/04

By conventional analysis, the stunning and overwhelming passage of Propositions 57 and 58 has placed California on the road to fiscal recovery.

The unprecedented $15 billion bond gives the legislature and the administration the time they need to put the state’s finances in order. The stern spending limits in Proposition 58 will give the governor added tools to restrain state spending. The stunning margin of victory greatly enhances the governor’s political clout with the legislature to win tough reforms. As those reforms take effect and the economy responds, state revenues will grow quickly to absorb the $1.5 billion in annual debt re-payments that Proposition 57 will require.

On paper anyway, that’s how California intends to borrow its way out of debt. But just beneath the surface festivities should lurk a high level of anxiety.

The first assumption is that the bond now gives the governor and the legislature breathing room to make the tough and unpopular decisions necessary to straighten out their fiscal problems. But experience should warn us that tough and unpopular decisions are only made under intense political pressure produced by urgent necessity. Now that the prospect of impending insolvency has vanished and legislators’ pockets are overflowing with an extra $15 billion of borrowed money – is the prospect of significant and painful reform (in an election year, no less) improved or diminished?

The second assumption is that Proposition 58 “tears up the credit cards” to assure the state never borrows to balance its budget again. Unfortunately, it doesn’t. Proposition 58 made no practical change in current law beyond suspending the oldest provision of the state constitution that for 154 years has prevented exactly the kind of borrowing that Proposition 57 now begins.

Under the “Balanced Budget Amendment,” a balanced budget is whatever the legislature says it is. Every one of the budgets that got California into financial difficulty was defined by the legislature as “balanced.” California’s budget deficits are the result of uncontrolled spending and dishonest accounting -- and the short-term borrowing to cover them -- and Proposition 58 does nothing to change that.

Consider the budget now pending before the legislature. It spends at least $5 billion more than the state expects to receive in revenue; it contains a reserve of less than one percent and it comprises an 11 percent increase in general fund spending over what Gray Davis actually approved just seven months ago. These defects are all perfectly compatible with Proposition 58.

The third assumption is that Democratic legislators have now been stunned by the magnitude of the governor’s ballot victories and will be much more deferential to his policy reforms. Perhaps. Or perhaps they will now begin to cash in political chits for whole-heartedly supporting the twin propositions upon which the governor defined his success or failure. It would appear that the highest of civic virtues in Sacramento today is “bipartisanship” – and Democrats may well be salivating at the concessions that have already been made to proclaim it.

Voters have been sold these ballot propositions as the “cornerstone” of California’s fiscal recovery plan. They have every right to conclude that by supporting them – against their earlier judgment – the state’s financial picture will now begin to improve. But so far only two certainties arise from their passage: California’s budget problems just got worse by $61⁄2 billion of interest costs and this generation has become the first in California’s history to pass on its daily expenses to its children.

Gov. Schwarzenegger was correct when he observed that California suffers a spending problem – not a revenue problem. Until the tough fiscal reforms are undertaken to reduce spending, California’s budget problems are unlikely to improve. CRO

§