The Red Ink State
Gray Davis as governor: every bit as bad as you've heard.
Oct 6, 2003, Vol. 9, No. 04 • By STEPHEN MOORE
These billions of dollars in five-year bonds make balancing the budget in 2004 and 2005 an even more Herculean task. Even if the general fund budget were held constant for the next three years (an improbable scenario given that it grew 28 percent in Davis's first three years), expenditures and receipts would likely remain out of balance because of the massive payments the state now has to make to service its debt. The next governor, whether Republican or Democrat, will almost certainly have to beg for more dollars from the credit markets (that is, issue more debt) to pay off the existing debt. Joel Fox of the Howard Jarvis Foundation warns that this gambit means Californians could be paying for Gray Davis's "overspending for not years, but decades to come." It's not unlikely: Tax-weary New Yorkers are still paying off bonds from the infamous debt crisis that erupted in the mid-'70s under Mayor Lindsey.
What is most unsettling about the dismal state of California's finances is that no one in charge seems to have any clue how to stem the tide of red ink. Lieutenant Governor Bustamante has declared that, if elected governor, he will immediately raise taxes on the rich and on corporations to balance the budget. Even many liberals in the state groaned in response to this economic delusion. With a 9 percent income tax on the rich, California already has the third highest such tax rate in the country, with about one-third of all the taxes paid by the wealthiest 1 percent of Californians. Another reason Bustamante's plan stinks is that the last time income tax rates were raised--under Republican governor Pete Wilson--the state actually lost revenue because the rich fled to places like Nevada, Texas, and Washington that impose no income tax at all.
An even bigger fantasy is the Democrats' latest party line that the recall is causing the budget debacle, not the other way around. State treasurer Phil Angelides recently fumed that: "I don't think there's any doubt that the recall has been part of the mix that brought down the state's credit rating." Angelides continued: "These credit ratings aren't a reflection of our economy but rather of the political paralysis, and the recall is another manifestation of the political paralysis."
Credit ratings aren't a reflection of the economy? How perfect. In the Davis administration, not even the treasurer seems to understand the basic rules of fiscal accountability--or to realize that gross mismanagement is the reason California is now burdened with an astronomical deficit.
Stephen Moore is a senior fellow in budgetary affairs at the Cato Institute.