Sunday, January 25, 2015
FAIRFIELD-SUISUN, CALIFORNIA
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California politicos admit failures in seeking rainy-day fund

walters column sig

By
From page A13 | April 23, 2014 |

When you get past the political fuzz and buzz, the Capitol’s quest for a new rainy-day fund to store excess state revenue is an admission that politicians have failed in the past and can’t be trusted in the future.

Gov. Jerry Brown, in calling a special legislative session to place a rainy-day fund measure on the November ballot, indirectly alluded to fiscal sins of the past.

“We simply must prevent the massive deficits of the last decade, and we can only do that by paying down our debts and creating a solid rainy-day fund,” Brown said.

Those “massive deficits” resulted from politicians squandering occasional windfalls on new spending and tax cuts, only to face shortfalls when revenue returned to normal.

The windfalls came from an unbalanced system that depends on personal income taxes for two-thirds of general fund revenue, especially high-income taxpayers and their capital investments.

Were the state’s politicians not irresponsible, they could manage the revenue swings by voluntarily building reserves during up-cycles to cushion down-cycles. But since they are untrustworthy, it leaves just two ways to avoid fiscal meltdowns – reform the tax system or be compelled to set aside windfall money.

The former would be preferable, not only to reduce volatility, but because the entire system is out of touch with 21st century economic reality. A stable, economically viable tax system has wide bases and low rates, but ours has very narrow bases and among the nation’s highest rates.

A state commission recommended a tax system overhaul a few years ago, but its report was quickly buried because it would have shifted some burden from high-income taxpayers to the middle class.

That leaves the rainy-day reserve that Brown wants, seeing it as his only hope of taming the budget monster. But Brown also knows that while revenue is on the upswing now, history indicates that a downturn is likely before his second governorship ends, and without a big reserve, he could end his career with another big deficit.

Brown’s fellow Democrats and their allies in unions and “safety net” advocacy groups really don’t want a tough rainy-day reserve that would curb spending – as indicated by Senate President Pro Tem Darrell Steinberg’s lukewarm, caveat-filled response. He wants to leave office this year with a billion-dollar-a-year expansion of early childhood education on his record.

Republicans, some of whose votes are needed to write a new rainy-day fund measure, would prefer a tougher one that was placed on the ballot five years ago as part of a budget deal but has been postponed by Democrats twice.

And the special session? It doesn’t make it any easier to pass a new measure, which requires a two-thirds legislative vote, but could make it easier to scratch the pending measure if no deal is made.

Dan Walters is a columnist for the Sacramento Bee. Reach him as dwalters@sacbee.com.

LEAVE A COMMENT

Discussion | 5 comments

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  • JagApril 23, 2014 - 9:49 am

    So the Republicans tried to put one of these things in five years ago and the union backed democrats have delayed it Gee what a surprise but who cares let’s not blame anyone let’s do both things a California flat tax and a rainy day fun but what would be considered use for this fun? Let’s say California cannot meet its obligation for Obama care does it dip into the fund for that?

    Reply | Report abusive comment
  • Rich GiddensApril 23, 2014 - 10:26 am

    California, thine name is FAILURE---social, economic, mission, charter, fiscal and moral FAILURE!

    Reply | Report abusive comment
  • patrickApril 23, 2014 - 12:20 pm

    you can never give California democrats enough money, let alone hold them accountable for it. look at Obama.

    Reply | Report abusive comment
  • Salty DogApril 23, 2014 - 3:56 pm

    Wow what a surprise another Democrat wants more money. LOL

    Reply | Report abusive comment
  • rlw895April 23, 2014 - 5:35 pm

    States should have flat, more regressive taxes for reliability; the federal government should have progressive taxes, much more so than now.

    Reply | Report abusive comment
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