CA: Look at State Spending from Gov. Pete Wilson to Gov. Arnold Schwarzenegger

Reason Foundation:

California is mired in perhaps its worst fiscal crisis ever and two questions are on the minds of
policymakers and taxpayers: (1) “How did we get here?” and (2) “How do we solve the problem?”
The scope of this paper is primarily focused on the first question and will examine data covering the stewardship of the past three governors: Pete Wilson, Gray Davis and Arnold Schwarzenegger.1

For a thorough list of solutions, I would direct the reader to Reason Foundation’s Citizens’ Budget 2003-05: A 10-Point Plan to Balance the California Budget and Protect Quality-of-Life Priorities, which provided a comprehensive analysis of the state budget and made numerous
recommendations for plugging a budget hole nearly six years ago that was almost as large as
today’s.2
With much fanfare, and after a record delay of nearly three months, the current state budget for the 2008-09 fiscal year was signed by Gov. Arnold Schwarzenegger on September 24, 2008. That budget addressed a $15.2 billion budget shortfall,3 but did so largely by papering over the deficit with accounting gimmicks and pushing it onto next year. That, in conjunction with deteriorating economic conditions, has caused the projected deficit to balloon. According to the Schwarzenegger administration, the budget deficit is now projected at $41.8 billion over the next 18 months,4 up from an already-staggering $28 billion shortfall estimate made just weeks prior.5
Thus, the deficit has now eclipsed the massive deficit of 2003-04, which was estimated between $26 billion and $34.6 billion over a similar 18-month timeframe under then-Gov. Gray Davis.6
To make the state’s fiscal condition even worse, Standard and Poor’s recently cut California’s
general obligation bond credit rating—tying the state with Louisiana for the worst credit rating in the nation—and placed it on a negative credit watch for another potential downgrade.7
The state government’s tendency to push tough fiscal decisions into the future, use accounting
gimmicks to shift deficits, and to rely upon bonds to finance projects have resulted in today’s
massive red ink. Before California’s leaders can reform the budget, they must admit the state has a spending addiction. The following state budget information shows in no uncertain terms that excessive spending is to blame for the $42 billion deficit.
2 | Reason Foundation
P a r t 2
The Problem Is Spending, Not Revenue
While Gov. Schwarzenegger has at times characterized the state’s budget problems as the result of runaway spending, he has changed his tune a bit recently. In a December 1, 2008 news release the Schwarzenegger administration claimed “…the dramatic deterioration in revenue projections since
the signing of 2008 Budget Act presents an extraordinary situation which, combined with the
volatility of our tax system, creates a revenue problem.”8
Notwithstanding the fact that the state’s revenue projections were far too optimistic to begin with, the reason California finds itself in its current fiscal mess is its profligate spending, not any lack of revenues.
Since former Gov. George Deukmejian’s final budget in FY 1990-91, state spending—including
the General Fund, special funds, and bond funds—has increased 180.9 percent, or an average of
5.91 percent a year. Spending increased from $51.4 billion in FY 1990-91 to $96.4 billion 10
years later in FY 2000-01. And spending continued to skyrocket to its current level of $144.5
billion in FY 2008-09. Since FY 1990-91, General Fund spending alone has increased 156.8
percent, or 5.37 percent a year (see Figure 1).

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