Contributor

Ray Haynes

Mr. Haynes is an Assembly member representing Riverside and Temecula. He serves on the Appropriations and Budget Committees. [go to Assembly Member Haynes website at California Assembly][go to Haynes index]

Budget Solution—Year One
Hard lessons from the Gray Era...
[Ray Haynes] 8/10/04

From 1999 to 2002, I wrote articles showing the state was headed for fiscal disaster. It was increasing spending far faster than the economy was growing. In fact, in my articles, The Perfect Budget Storm and The Budget that Ate California, written in May and July of 2001, I predicted massive budget deficits within the following two years.

At the time I made the predictions, experts were saying that I was crazy. No recession was coming, they said, revenue was expected to hit $82 billion in the 2001-02 budget year. The state could justify a huge increase in spending, from $66 billion to $79 billion in that one year, without consequence.

Those experts were wrong. Governor Davis and members of the Legislature knew by November 2001 that revenue predictions were going to fall short. A recession was in full swing, a recession that had started in January 2001, and the large capital gains upon which the big spenders in the capitol had relied to fuel the growth of government had dissipated. It was certainly no surprise to me when we were being faced with massive deficits.

But the state kept spending. Governor Gray Davis, in the mode that cost him his job, simply ignored the crisis. The situation exploded, going from a $28 billion problem in 2001-02 to $35 billion in 02-03. To fix the problem, Governor Davis borrowed—and borrowed and borrowed and borrowed. He told Treasurer Phil Angelides to go out and refinance what the state had already borrowed, so that the state wouldn’t have to make payments for two years. Angelides gleefully accepted the challenge without complaint.

Things continued to deteriorate, but, undeterred, Davis and his leftist friends continued their spendthrift ways. Angelides did not complain, continuing to help them borrow their way through the problem. Republicans proposed spending cuts, since state spending had increased 41% in three short years. Democrats wanted tax increases, even though revenue had actually increased by 28% overall during that same period. Spending continued.

Davis lost his job to the recall, and Governor Schwarzenegger proposed fixes to the spending excesses of the Davis years. The Democrats in the Legislature demurred. Finally, after seven months of wrangling, an agreement was reached. It reduced the $48 billion deficit problem that Davis left to $5 billion. It didn’t raise taxes, and it actually did some real cutting. It did not however solve all of the problems that it took 5 years for Davis, Angelides, and their Democrat cohorts in the Legislature to create. The Governor’s original budget in January proposed over $3 billion in savings, which would have solved almost all of the problems. The Democrats insisted on another $4 billion in spending. The Governor agreed to $1.3 billion, increasing the out-year problem by about $3 billion.

Because the Democrats didn’t get to raise taxes, they are now complaining that the budget borrows too much, and creates large out-year deficits. Their “out-year” deficits were $48 billion. This Governor reduced them to $4 billion, even with the Democrats’ spending demands. I believe that the end of next year’s budget process will eliminate that spending gap completely.

That being said, California’s government is still too big, too bureaucratic, and too unresponsive to the needs of its people. The Governor, to address those problems, has proposed the California Performance Review. Their report calls for sweeping reform that could save the state as much as $32 billion over the next five years. Let’s see how the Democrats, who now complain loudly about the Governor’s budget, respond to the challenge of a more lean, more effective state government.CRO

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