The Late, Great Golden State (07099) by J. F. Kelly, Jr

A commentary by J. F. Kelly, Jr. “California’s cascading crises prefigure America’s future unless Washington reverses the growth of government subservient to organized labor.” -George F. Will California isn’t alone as a state with budget shortfalls but, as in so many other categories, it leads the way. Its dysfunctional state government is unable to resolve the shortfalls and balance its budget as the state constitution requires. Governor Arnold Schwarzenegger, having threatened to veto any solution that raises taxes, has, at this writing, been unable to broker a compromise between Sacramento’s warring political factions. As a consequence, the state has begun for the second time in its history to issue IOUs to some of its numerous creditors and welfare recipients. There were questions regarding whether or not some financial institutions would honor them or for how long. The IOUs, or warrants, will bear interest, adding to the state’s huge deficit, further damaging its credit rating and increasing its cost of borrowing. By the way, don’t try paying your estimated tax bill by writing an IOU. It doesn’t work that way. The cause of the state’s budget woes is clear enough: profligate spending as usual combined with greatly reduced revenue owing to the economic downturn and California’s sinking economy. Free-spending state legislators continue to grow public spending as if the good times had never ended. But they have. Businesses have abandoned the Golden State to seek relief from its high taxes, anti-business culture and steep cost of living. California ranks first and second, respectively, among states with the highest income taxes and sales tax rates in the nation. As columnist George Will recently noted, one quarter of the state’s revenue comes from income taxes paid by a mere 144,000 affluent taxpayers. When some of them get fed up and leave, California has a big problem. Tax policies which soak the rich work only until the rich decide to relocate to tax-friendlier states. Another major problem is the state’s out-of-control ballot referendum process. Its legislators refuse to tackle the tough issues they were elected to deal with so activists gather enough signatures to get them on the ballot as propositions. They then mount extensive propaganda campaigns which blatantly distort the issues, using deceptive media advertisements. Even the ballot language can be misleading. Unfortunately, many voters are taken in by the hype and demagoguery and vote for changes without fully understanding the consequences or fiscal implications. Too often these are very different from what they thought they were supporting and the results impact the budget forever unless overturned by the courts or another referendum. Proposition 98, for example, approved by the voters, requires that a fixed percentage of revenue go to education. It sounded reasonable. Who’s against education? But California spends plenty on education and the more it spends, the worse the results seem to be. The state’s elementary students rank 46th, 48th and 49th, respectively in math, reading and science among the fifty states. The education lobby’s solution never changes: more money. Democratic legislators fiercely defend the education spending and many criticize Proposition 13, another voter initiative, which caps property tax increases. But Proposition 13 was approved by angry taxpayers to prevent Sacramento from relentlessly taxing seniors and others on fixed incomes out of their homes. Proposition 98, on the other hand, mandates a set percentage of revenue for education, in good times or bad, and regardless of the need for the funds or the results obtained by their expenditure. Something must change in Sacramento because the current system is not working. Checks and balances are desirable but deadlock is not. Nor is the degree of influence which the state’s teacher and public employee unions wield. Democrats argue that a solution should involve eliminating the supermajority requirement whereby a two-thirds majority is required to approve a budget and most tax increases. But that would be no solution at all. The supermajority requirement is the only thing that keeps taxes from exploding altogether. A simple majority of as little as one vote may sound terribly democratic but not when it takes so little to raise everyone’s taxes. California citizens deserve better, but basically, they will get the kind of government they vote for. Fixed percentages of revenue should never be established for anything. Each budget process should be an exercise in analyzing the need for all spending. That’s what legislators are paid to do. If they can’t, they shouldn’t be paid. And budget shortfalls should then be resolved by automatic horizontal reductions across all budget categories including education. Copyright 2009 by J. F. Kelly, Jr.