The Rosey Scenario
Beware the budget surplus…
[by Ray Haynes] 11/28/05

Each November, the Legislative Analyst’s Office (LAO) puts out a report on our “state of the current year budget,” that is the budget year we are in at the time of the report, giving us information on how much we’re spending and the revenues coming in. Then they give us a prediction of the next year’s budget. The report analyzes revenue and spending trends, and puts those trends in the context of the budget passed in June (or July or August or September, depending on the year), and how those trends should impact future year’s budgets. These reports are used by the Legislature and the Governor’s office in preparation for the January budget.

Indeed, these reports have been useful in the past as early warnings of impending budget disasters and as predictors of budget surpluses. They are not very useful as a policy tool (and the Legislative Analyst will admit that policy is the Legislature’s province, not hers) because they tend to take a pro-government position on most policy disputes. Some of it has to do with institutional bias, some of it has to do with the boss (the LAO is basically under the control of the Democrats, although it tries to keep a nonpartisan persona), and some of it is just the predilections of those who work there. In the end, however, the report has some serious value as an informational document.

This year that report predicts a $4 billion increase in revenue over last year’s budget predictions. The report then pronounced our budget deficit at an end. Cheers rose at that report throughout Sacramento. We have money again, the bureaucrats and leftists announced to the masses.

I cringed.

The last time the LAO predicted a $4 billion surplus, it at the same time advocated against a tax cut. I (along with others) called for a tax cut. I was told we didn’t have the money for that, and then the Democrats took the money and spent it on welfare programs. The surplus turned out to be almost $8 billion and a large part of that surplus was spent on big government programs. The next year, the LAO predicted another large surplus (which turned out to be almost $12 billion), and once again advocated against a tax cut. The Democrats again spent the money on social welfare programs, increasing total state spending from $57 billion to $79 billion in two short years. In defense of the LAO, it recommended against the spending increases in these salad days, but the Democrats took its advice on tax cuts, and ignored its advice on spending increases. Then the Davis collapse occurred and the state saw a $28 billion deficit.

Now spending is back on the table. With the deficit “gone,” the restraint on the Democrats is gone, and they are now free to indulge their natural inclination to spend on everything their hearts desire (except law enforcement and roads, which is what people want). With the recent election, they are going to claim they have a mandate to create a new deficit. The problem is that Schwarzenegger may believe them.

That is why I cringed. History is repeating itself, the only problem is that there are only about 20 people in the Legislature who were here in 1999-2000 when the last spending binge began, and 15 of them want to spend the surplus and then some. The Democrats will prove themselves more than willing to create the next deficit. If history repeats itself completely, some Republicans, eager to bring the bacon home to their district, will participate in the deficit creating business.

Taxpayers should fear surpluses, because that’s when government grows, and deficits are created. Then again, they should fear deficits, because that is when government demands tax increases. Maybe taxpayers should just fear governments. CRO

Mr. Haynes is a California Assembleyman representing Riverside and Temecula and frequent contributor to CaliforniaRepublic.org.

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