Fourteen years ago, the governor of California solemnly pledged not to squander a $12.3 billion revenue windfall on unsustainable tax cuts or spending.
“I intend to resist the siren song of permanent spending whether it comes from the left or the right,” Gray Davis told reporters. “And I will stand up to anyone who tries to convince the Legislature that they should spend most or all of this money in ongoing expenses.”
Davis caved within a few weeks, agreeing to use two-thirds of the windfall for permanent spending and tax cuts. Not surprisingly, the state faced multibillion-dollar deficits a year later.
It was not the first time that a brief windfall had been misspent, nor would it be the last.
On Thursday, Gov. Jerry Brown stood at the same podium that Davis used in 2000 and solemnly pledged not to overspend a new surge in state revenue – even alluding indirectly to Davis’ failure.
“The state’s fiscal history is riddled with budgets that made permanent obligations – both spending increases and tax cuts – based on temporary revenue increases,” Brown said in his budget. “After these spikes in revenues disappeared – as they always do – the state was forced to cut programs and raise taxes.”
Brown, citing an ever-increasing dependence on taxes from highly volatile capital gains, said he, too, would resist pressures to ramp up permanent spending and wants to divert much new revenue into paying down debt and building up reserves to cushion future downturns.
“We’ve got lots of long-term liabilities,” Brown said. “It isn’t time to just embark on a whole raft of new initiatives, and that’s the problem.”
Brown’s budget details $24.9 billion in remaining debt from a half-decade of budget deficits, plus $354.5 billion in “long-term liabilities,” mostly unfunded pension and health care promises to state retirees and teachers.
The surge in revenue and Brown’s evident intent to avoid repeating the mistakes of the past make the 2014-15 budget a pivotal one.
Brown’s fellow Democrats in the Legislature pay lip service to his go-slow approach but nevertheless want to ramp up spending for “safety net” health and welfare services and create new programs, such as a big expansion of kindergarten. And the advocates of spending are increasing public drum-beating.
Brown seems genuinely bent on bringing order to California’s chaotic fiscal affairs, but its increasing dependence on how a handful of wealthy Californians are faring in capital markets is a big barrier.
Creating a substantial “rainy-day fund,” as he proposes, is better than doing nothing, but overhauling the tax system itself to create more stability and predictability would be a better approach – particularly if he is serious about addressing that $354.5 billion mountain of long-term debt.
Dan Walters is a columnist for the Sacramento Bee. Reach him as [email protected]