Amid fears that the US economy is slipping into recession, California Governor Arnold Schwarzenegger is having to face up to the realities of being the leader of – depending on whose figures you use – the economy which is between the sixth and tenth largest globally.
Despite the size of California's economy – about $1.7 trillion (2006 figures), or about 17% of the United States' gross domestic product – seventeen states have greater economic growth than does California (2005 figures). Without this growth, as Der Governator notes, California cannot meet the 7.3% annual growth in expenditures embedded in the law with static tax revenues caused by deteriorating economic conditions. This puts Arnold in a very sticky wicket, as he is in the process of seeking to create an expensive state universal health care system. He's also facing 98 state school districts failing to meet Bush's No Child Left Educated guidelines, a situation which could cost the state a lot of desperately needed federal education funds.
To give credit where credit is due, the Governor isn't as cocky as he used to be, and recognizes that he and the state legislature need to apply tough fiscal discipline to cut California's budget rather than merely raising taxes. As Jack Pitney, professor of government at Claremont McKenna College, puts it: "He has to either cut spending or raise taxes. Either of those courses is going to be very politically unpopular." Schwarzenegger has already begun the process of meeting with "leaders and advocates" representing – in his words – "necessary causes" to tell them that they will share in his proposed across-the-board spending cuts despite his personal support for meeting their economic needs.
I happen to agree with Schwarzenegger and Legislative conservatives that a thorough and honest accounting of California's governmental spending is overdue, and that it may well be time to make considerable changes in where that money goes. But from the reaction emanating from many of the state's conservatives, one would wonder if they truly mean the spendthrift charges they have been aiming at the Democrats – while coincidently blaming them for the necessity – since the passage of the infamous Proposition 13. The business community is already on the offensive against the goring of their oxen to benefit others.
But while the need to cut spending is clearly evident, the usual propaganda is issued by the partisan politicians. "New government programs that have been irresponsibly implemented in the last two years should be the first cuts that are made," shouts Assemblyman Jim Silva (R-Huntington Beach), ignoring that some of these programs may well be vital to the state's population as a whole. Besides, the Bush tax cutting has had seven years to prove that it works. It hasn't.
Conservative Sacramento Bee columnist Dan Walters takes Schwarzenegger to task for making his inherited multibillion dollar deficit much worse by "reinstating a popular but unaffordable tax break for car owners". At least Walters understood the folly of this move back in 2003 when it first happened, despite his generally anti-tax positions.
The counter-argument coming from State Sen. Joe Simitian (D-Palo Alto) – "The real solution is as challenging as it is simple: Spend less. Collect more. Do it now" – also ignores the current economic conditions, in that with declining wages, and wage earners paying less taxes, spending more isn't an option if the money isn't there to spend.
So far, the only realistic assessment of the problem facing California comes from Assembly Speaker Fabian Nunez (D-Los Angeles), who said: "Clearly, cuts alone won't fix things. If there's a $14 billion deficit, you could close every one of the state's public universities and still be nowhere close." I await the proposed details, to be released in two days, to see if any of the other state elected officials recognize reality.
Over the next several months, if not years, Californians are going to be facing some serious decisions as to what programs to keep and what to abandon. Any programs which are kept will need stable income sources to cover expenses, and that could include raising specific taxes. If this is done in an honest manner, and not one in which vested interests maintain their sacred cows while butchering the family cat, it could result in the end of the general fund concept of governmental funding.