The governor is blowing through billions instead of paying off
California’s mounting credit card debt
“The May Revision continues the Governor’s commitment to restraining the growth in spending, pre-paying debt, eliminating the net operating deficit, not raising taxes and maintaining an adequate reserve.” Or so says the introductory paragraph of the governor’s updated budget plan.
Just for fun, let’s run that through the old fact-checker:
“Restraining the growth in spending?” When the governor took office, Gray Davis was spending $78.3 billion from the general fund. The May revision “restrains” spending to just under $103.8 billion, an increase of 32.6 percent. That’s an annual average growth rate of 8.1 percent, compared to 7.1 percent under Davis and 4.8 percent under Wilson.
“Pre-Paying Debt?” When the Governor took office, our minimum credit card payment consumed 3 percent of the state’s general fund. It will consume 7 percent of next year’s budget. The “debt pre-payment” to which the governor refers is an early payment toward covering his 2004 borrowing binge. But it is somewhat illusory. Legislative Analyst Liz Hill compares it to a family making an extra mortgage payment when they can’t pay the electricity bill. With the state running chronic deficits, using borrowed money to repay borrowed money is no way to get ahead.
“Eliminating the net operating deficit?” When the governor took office in 2003, the general fund was bleeding $1.6 billion in red ink. Under Schwarzenegger’s May budget revision, it will rack up a $2.5 billion deficit, and according to the LAO, $5 billion more the following year. Put another way, in five years, Davis accumulated a combined deficit of $4.2 billion and Schwarzenegger is on track during his first five years to put us under by $10 billion.
At a recent press conference, the governor boasted of wrestling the deficit down from $16.5 billion to $1.4 billion, an impressive feat, if true. Unfortunately, it is merely an impressive fiction.
His oft-cited structural deficit of $16.5 billion was actually a 2003 recession-era projection of what would happen if spending growth continued unabated while revenues remained depressed. Spending growth has indeed continued unabated. Rising revenues – not gubernatorial frugality – have made the projection utterly irrelevant.
And his claim of a mere $1.4 billion deficit is the result of taking the actual $2.5 billion deficit and subtracting a transfer to the Budget Stabilization Account that is required by Proposition 58. It’s the equivalent of putting money into an IRA, but failing to deduct it from your checking account.
“Not raising taxes?” Actually, the governor has proposed $4.5 billion of new taxes to pay for his universal health plan, making it the second biggest tax increase in California’s history. That proposal is separate from the budget, although it is doubtful taxpayers will appreciate the distinction.
“Maintaining an adequate reserve?” Thanks to massive state borrowing in 2004 and revenue windfalls in 2005 and 2006, we began the 2006-07 budget year with $10.5 billion in the bank (and nearly $10 billion in credit card debt). Instead of paying off the credit card, the governor will have blown through all but $2.2 billion of it with the May revision.
And the Legislative Analyst’s Office just added a sour post-script: the actual “adequate reserve” will be closer to $500 million – meaning that a $10 billion nest egg will have been squandered in just 24 months. And the 2008 budget will begin in a $5 billion hole.
Sorry to rain on the parade, but as John Adams said, “Facts are stubborn things.”
Sen. McClintock represents the 19th district in the California Legislature. His web address is www.sen.ca.gov/mcclintock.
