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 Controller on the Republican ticket in 2002. His valuable
website is found at www.tommclintock.com
The state's financial health means tightening the belt...
[Tom McClintock] 12/5/03
Have you ever had to make
serious cuts - 15 percent or more – in your family
budget because of an unexpected job-loss or unforeseen expense? It's not pleasant,
but it's not impossible. And it's also not permanent. As long as you're willing
to face your financial problems squarely, you can be sure that the hard times
won't last forever and things will improve.
But if you're not willing to face those problems - if you paper
over your debt by borrowing and continue to spend as if that
debt didn't exist -- those hard times will follow you far into
State government is no different. And as the new administration
decides which road it will take, it is important to understand
the simple math of the state's finances.
California's current budget deficit is caused by two actions
Davis took last year to paper over his mismanagement: he illegally
tripled the car tax and he attempted to borrow $12.6 billion
Schwarzenegger rescinded the illegal tax increase on his first
day in office.
It's important to note the word "illegal." Not
one of the conditions required to raise the car tax had been
met, and it was only a matter of time before the courts ordered
the money to be returned to taxpayers with interest. By acting
now, he saved California from having a multi-billion dollar hole
blown in a future budget by court order.
But repairing this problem requires that local governments be
reimbursed for their losses. In addition, the courts have already
invalidated $1.9 billion of Davis' borrowing plan, further deepening
According to the Legislative Analyst's Office, these developments
mean that the state will end up spending $76.9 billion this year,
with only $74.2 billion in revenue. It gets worse. The courts
are also poised to strike down the additional $10.7 billion of
borrowing in Davis' last budget. It is not a pleasant financial
situation. But it is also not impossible.
If the current rate of state spending were reduced 13.4 percent
on January 1st and frozen through Gov. Schwarzenegger's first
budget, the state would be back in the black, free and clear
of external debt, and able to start the Governor's second year
in 2005 with a clean slate.
A 13.4 percent reduction would mean cutting $5.2 billion from
this year's budget before January 1 and setting next year's budget
at $66.6 billion.
That's a big cut - and it means giving up billions of dollars
of programmed spending increases next year. But it's still 15.2
percent more than California was spending when Gray Davis took
office. And after 18 months of austerity, the Governor would
be able to plan his second budget with $12 billion of breathing
room in 2005 when revenues are projected to reach $78.6 billion.
Like a family that has faced its finances squarely and tightened
its belt, California would be solidly back on its feet and looking
toward a sunny future.
The alternative is to borrow the difference at heavy rates of
interest over the next generation. Like a family that can't bear
to change its ways, it would end up dragging its financial difficulties
into future years as it struggles to meet its current expenses
and pay down a crushing credit card debt as well.
These are the two roads diverging in the budget woods and the
choice that is made in coming weeks may well determine whether
California has the fresh financial start it deserves, or whether
the ghost of Davis' excesses stalks a generation to come.