The California State Budget Disaster

Voted in as Governor of California in a 2003 recall election of Gray Davis and his then $34.6 billion state government budget crisis, Arnold Schwarzenegger has since presided over a 40% increase in spending and a projected $42 billion deficit for the current fiscal year. At the Sam Adams Alliance’s Sunshine Review, the National Taxpayers Union Foundation has recently assembled an excellent California State Budget web page, explaining the major factors involved:

The immediate source of the short-term problem is that state revenues declined by more than 8 percent from September 2008-December 2008.

California’s state spending has ballooned in the last decade at a rate that is much higher than the rate of inflation and rate of population growth in the state. According to Tom Campbell, who served as California’s finance director in 2004-2005, if the 1999-2000 budget of former California governor Gray Davis had been increased over the next decade by a factor representing the inflation rate and California’s population growth in that time, California would now be experiencing a budget surplus, rather than a deficit even with the recent revenue decline due to the state’s economic recession.

For Fiscal Year 2007-2008, state spending from state sources was $144.8 billion (federal money added another $59.5 billion). In FY 2003-2004 the figures were $104.2 billion and $52.5 billion, respectively. In FY 1997-98 they were $68.5 billion and $31.6 billion. In other words, over the past 10 years state spending from state sources has more than doubled in nominal terms (not adjusted for inflation), and during the current governor’s tenure state spending from state sources has risen almost 40 percent.

The web page then outlines the various proposed solutions, including the need to cut government spending and largesse. An additional and very promising choice would be to begin liquidating California State assets which are enormous in scope and value and are being wasted and mismanaged in the extreme. In this regard, Independent Institute Senior Fellow William Shughart has shown that even a tiny move in this direction would easily cover any deficit, and he further notes why Schwarzenegger’s tax and spend mania is exactly wrong:

The latest budget crunch, along with Gov. Schwarzenegger’s package of ad hoc responses to it, should be proof positive, if further proof were needed, that prosperity will return to the state only when government gets out of the way. . . . Gov. Schwarzenegger wants to tax and spend the state’s way toward budget balance. But the combination of economic stimulus proposals he announced on November 6 is like rearranging the chairs on the deck of the Titanic after hitting the iceberg.

Meanwhile, Schwarzenegger has been seeking a federal emergency loan of $7 billion or more, claiming that the only reason why the federal bailouts program is not working is “the way it was marketed.” The Spoof has since lampooned Schwarzenegger in their hilarious article, “Schwarzenegger Proposes $100 Trillion Bailout.”

David J. Theroux is Founder, President and Chief Executive Officer of the Independent Institute and Publisher of the quarterly journal, The Independent Review.
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