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Thousand Oaks

A Small Victory And A Big Risk

by Tom McClintock [politician] 8/23/07

Budget developments moved so fast and were so uncertain over the past 24 hours that there was no opportunity to offer a clear picture of the situation or suggest what people could do to weigh in. Yesterday rumors of a “deal” circulated but were denied by the Republican leadership. This afternoon, with very little notice, a bare majority of the Senate Republican caucus decided that further negotiations were unlikely to produce any additional progress. Abel Maldonado and Richard Ackerman ultimately combined with the Democrats and voted out this budget. I am afraid that this action places California on a collision course with another Gray Davis-sized fiscal crisis within the next two years.

In a period of strong economic growth, the budget would still run a deficit this year but would have a sufficient reserve to cover it. In 2005 the budget was adopted with a substantial deficit, but a huge revenue surge produced by workers comp regulatory relief ultimately produced a small surplus.

Contributors
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 http://www.carepublic.com/blog.html[McClintock index]

But I’m afraid we are now in exactly the opposite situation – the administration imposed ponderous regulatory burdens last year that are having a decidedly negative impact on the economy. Unemployment is rising, our foreclosure activity is four times the national rate and we actually experienced a net loss of jobs last month – something almost unprecedented for California.

As I pointed out on the Senate floor, if the economy simply doesn’t get any worse and we have the same rate of revenue growth as last year, we could run out of money before the end of the year. And the budget sets in motion a much bigger budget deficit for next year.

It is not all bad news. Because the Republicans held strong in the Senate for nearly a month, they won two principal concessions:

• The governor – who had previously agreed to make $200 million in line item vetoes – has now committed to $400 million in actual spending reductions and $300 million more that is in fact an accounting adjustment that reduces the Medi-Cal reserve.

• The transportation and water bond funds are to be exempt for two years from the impact of the Governor’s AB 32, which makes the use of concrete all but impossible due to its release of massive quantities of carbon dioxide.

THANK YOU to all the people who called or e-mailed or wrote letters during the budget crisis. You steeled the resolve of Senate Republicans and made a material contribution to the small concessions that were won. We also proved that 50,000 activists could make an impact on the public policy debate and we’ll be refining that in the months ahead.

We will also work to respond more quickly to the kind of rapid and fluid conditions that produced the events of last night and this morning, and will keep you advised as the financial picture changes. CRO

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