California: Brown’s austerity budget?

Posted by: Phineas on December 29, 2010 at 3:38 pm

The LA Times has an interesting article today about incoming Governor Brown’s proposed budget – interesting mainly for what it hints at and leaves out, and secondarily for a bit of media bias. First, the proposal:

Gov.-elect Jerry Brown is laying the groundwork for a budget plan that would couple deep cuts to state services, including university systems and welfare programs, with a request that voters extend temporary tax hikes on vehicles, income and sales that are set to expire next year.

The blueprint Brown will unveil when he takes office early next month also is expected to take aim at several tax breaks and subsidies that have been fiercely guarded by the business lobby in Sacramento, according to people involved in budget discussions with the incoming administration.

Among the breaks are multibillion-dollar incentives for redevelopment projects and hundreds of millions of dollars of “enterprise zone” credits meant to encourage investment in blighted neighborhoods. Also targeted is a recent change to state business tax formulas that has saved corporate California roughly $1 billion.

The combination of austere spending and extended tax hikes is designed to confront both parties and their allied interest groups with painful choices that Brown says are necessary to truly resolve the state’s massive budget problems. He intends to take swift action, using the political capital of a new governor to confront a deficit that could easily subsume his governorship.

In a symbolic gesture to garner the trust of a skeptical public, Brown has already pledged to cut his own office budget by 25%.

First promising sign: the Governor-elect recognizes we’re in a deep mess and cannot keep spending the way we have been for the past 25 years :

California state spending has outgrown the state’s tax base by 1.3 percentage points annually for 25 years. Simple arithmetic dictates that in lieu of constant tax increases, this perpetuates a deficit.

From 1985 to 2009 state GDP in California grew by 5.5 percent per year, on average (not adjusted for inflation). Annual growth in state spending was 6.8 percent, on average. Three spending categories have dominated this spending spree: public schools, cash assistance and Medicaid. Making up half of state spending, they are outlets for traditional redistributive welfare state policy.

(h/t Wyoming Liberty Group)

Back to the Times article, Brown plans to ask for cuts to California’s welfare, public school, California State University, and University of California allocations. He also wants to change or eliminate special enterprise zones (areas of lowered taxes to encourage local hiring) and the way a particular tax is calculated for businesses. Finally, he wants voters to approve an extension of onerous tax increases enacted a few years ago, which will expire with this fiscal year.

It’s a mixed bag, with something to tick off everyone. By one theory of politics, that means he must be doing something right. Teacher’s unions and the universities, for example, will hate the cuts to education. But, let’s be blunt here: CSU and UC students, even after recent fee hikes, are still heavily subsidized and charged nowhere near market rate for what they get. And higher education is a public good, not an unalienable right. If the state can’t afford to keep subsidizing it at current levels, then logic dictates cutting back. And it’s not as if public school performance in California has warranted giving the teachers unions more, instead of forcing some competition and choice into the system, as has New Orleans.

The proposals to cut back business enterprise zones will surely anger business communities, but the article mentions (but does not cite directly) studies arguing that those zones have not had the desired effect. Shouldn’t fiscal conservatives be open to the idea of ending programs that don’t work, even if they are ones conservatives sympathize with?

One of the greatest obstacles Brown’s proposals face is the extension of tax rates. California is already one of the mostly highly taxed states in the nation, one of the reasons businesses and people are leaving for other states that don’t punish success nearly as much. Here in the Golden State, if you make more than $47,055, but less than a million, you pay the second-highest rate, 9.55%. Sales tax in Los Angeles county is 9.75%, which is a 1.5% premium over the state rate of 8.25%. And auto registration fees (the dread car tax, which was part of why Gray Davis lost his job in 2003) is 1.15% of the car’s value. Brown is hoping that spending cuts will persuade a skeptical and angry public to extend these tax rates in a special election in return for deep spending cuts. We’ll see.

The devil, of course, is in the details, and Brown’s representative was deliberately vague, probably not wanting to show his hand in advance of what is sure to be a hard fight in the legislature. Here are some questions I have for the once-and-future governor:

  • Are these spending cuts permanent reductions in bloated state spending, or just a temporary cutback until the economy picks up, at which point we’ll go on a binge again?
  • When would the extended tax rates expire? When the economy recovers, will you consider tax cuts to stimulate economic growth?
  • Will you push for an increase in school choice to break the stranglehold of the teachers unions and make sure we’re getting value for the money we put into education?
  • What will you do to reform California’s regulatory environment, which helps make this state the worst in which to do business?
  • What will you do to curb the corrupting influence of other public-employee unions?

I’m sure there are a lot more questions, but these are a start — as is Brown’s plan. We’ll see what comes out in the details in the months ahead.

TANGENT: The article does a pretty good job with the basics, but still reflects the LA Times’ pro-Democrat, pro-progressive bias. When discussing portions of Brown’s proposal that the business community might not like, it mentions only opposition with no word about people who might be hurt by the changes. When talking about cuts to welfare and education, we get pity-words about students and the poor, with no attention given to the effectiveness of those programs — unlike we see in the discussion of enterprise zones. Not egregious, not outrageous, but sadly typical.

(Crossposted at Public Secrets)

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8 Responses to “California: Brown’s austerity budget?”

Comments

  1. Tango says:

    ….I’ll believe the ‘cuts’ when I see ‘em. In the words of another (former) California governor:

    “trust but verify!”

  2. Phineas says:

    Tango,

    My test will be how loudly his union backers grumble or scream. Louder is better. :)

  3. Carlos says:

    Spending binge in the last twenty-five years? Refresh my memory, please. Who have the governors for that state been in the last twenty-five years?

    Could it possibly be that the newly-elected governor of that sad state was part of the problem?

    You don’t say!

  4. Phineas says:

    Brown is part of the problem, but not part of the spending rise cited in the study. He left office in 1983 after two terms*. Governors since then have been Deukmejian (R), Wilson (R), Davis (D), and Schwarzenegger (R, kinda-sorta). And, I bet if one looked at the figures, the rate of spending would accelerates greatly under Davis and Arnie.

    *Only to rise like a zombie, apparently.

  5. Coastal Eddie says:

    This clown is brain dead. The only thing that will generate more revenue is to lower the catastrophic tax rate.

    Taxes and government revenue are on opposite ends of a see saw, As one side goes up, the other goes down. If you raise taxes, state income goes down, the higher taxes are, the lower the state revenue.

    If taxes are reduced, state income soars to new heights. Unfortunately, Jerry Brown cannot accept the this truth although it has been proven here and around the world.

  6. CA resident says:

    I recently got a notice that the number of hours my son will be allowed for Protected Supervision will be reduced from 283 hrs a month to 272.9 hrs. He’s confined to a wheelchair, and suffers brain damage from a car crash when the driver of the car fell asleep at the wheel. He spent 18 months in a nursing home, at a cost to the state of approximately $8000 a month. Now that he’s at home, and I am his 24/7 caregiver, the state is saving approximately $6000 a month. I couldn’t agree more that there need to be cuts to the government’s spending, but there are SO many more pork projects to hit before going after the elderly and infirm. And no, this small cut won’t be the difference between putting food on my table or not, but neither will it make any dent in the enormous budget deficit.

  7. Carlos says:

    If the study was from 1985 to 2010, I wonder if the fact JB is returning to his bully pulpit had anything to do with that?

    It just seems to me terribly convenient that the study didn’t include any of his moonbeam “leadership”.

    One might even want to go as far back as his daddy. That would include the temporary turnaround under Reagan.

  8. Brown also wants to raise our taxes.

    LINK

    Get your popcorn out and get ready to watch this state collapse.