What Budget Crisis?

Humans have been around for tens of thousands of years. And yet as
recently as a thousand years ago there was a broad consensus —
even among the most highly educated — that the world was flat. The
problem with "consensus" is that it becomes groupthink. If an idea
has no challengers it becomes difficult to disprove and those who
speak against the established orthodoxy are always marginalized.

There seems to be a consensus in California that we have a "Budget
Crisis." But if "crisis" is defined as a situation where impending
disaster is a probable outcome — think Cuban Missile Crisis — then
the notion that California is in the midst of crisis needs to be
challenged.

In support of the crisis mentality for California’s predicament is
the contention that California is "going to run out of money" by
February. This is inaccurate for two reasons. First even with
significant reductions in tax revenues to the state and local
governments California remains a tax producing behemoth. Because of
its $1.6 trillion economy California will generate tens of billions
of dollars more than next-ranked Texas.

The distinct nature of California’s economy reveals the second
inaccuracy. It is not California that is running out of money it is
California government that more accurately has a cash flow
problem. And government is going to run out of money only if one
assumes a continuation of the rate of spending based on previous
years. But why should we be forced to make this assumption?

It is not a "crisis" if you are merely driving down the freeway. It
is a crisis if you fail to slow down when you get to your exit.
Reducing government expenditures when revenues decrease should be as
natural as slowing down a car when approaching an off ramp — and we
can do it without invoking the "C" word.

You want a real crisis? Talk to the folks at Circuit City and
Mervyns. Except for inventory liquidations there is no more revenue
coming in the door. Could those corporations and thousands of other
small and large businesses going through bankruptcy have avoided
this fate with a ten or fifteen percent reduction in revenue?
Probably.

Although the vast majority of Californians have indeed been
convinced that government is in the midst of a budget crisis our
political leaders have another problem on their hands: Not everyone
cares. As recently reported in the Sacramento Bee citizens are more
concerned with their own issues than with the threat of a government
shutdown. It is not that they want failure it is simply that they
don’t see a direct impact on them.

For that reason and motivated to ensure that the voting public will
resign itself to a tax increase our political leadership has taken
steps in an effort to engage — or frighten — the public. Sure if
asked the taxpaying public would prefer that California
governments’ books be balanced but the majority of citizens do not
rely directly on government for their livelihoods.

The first scare tactic — and one targeted specifically at the
productive segment of our population — is the threat to pay tax
refunds with IOUs. But is this really necessary? We have our doubts.

It turns out that there exist in the vaults of governments billions
of dollars of unused funds. Whether it is redevelopment money
excess revenue from the tobacco tax or millionaires’ tax the
account balances of dozens of funds under the control of the state
do not reflect the level of poverty we are being told.

What is sorely needed now is a healthy dose of skepticism about the
threats now being issued by our State Controller State Treasurer
and Director of Finance. Just one question illustrates this concern.
We have been told that without a resolution of the budget deficit
California would be shut out of the bond market. If that is true
then how did California just recently manage to sell almost $350
million in Department of Water Resource Bonds? Obviously someone
still recognizes that debt issuances by California are a worthy
investment.

All this is not to say everything is coming up roses in the Golden
State. To the contrary government’s rampant overspending continues
and we indeed have a cash flow problem. But let’s not accept without
critical analysis a "cure" for a problem that now appears to be
significantly overstated.

Jon Coupal is President of the Howard Jarvis Taxpayers Association
— California’s largest taxpayer organization — which is dedicated
to the protection of Proposition 13 and promoting taxpayers’ rights.