This op-ed originally appeared in Fox & Hounds
Noted “straight talker,” State Treasurer Bill Lockyer, must be living in another California. In a recent Los Angeles Times editorial (“California Isn’t Broken”), he suggests that criticisms of California’s fiscal and economic problems are overblown. While I agree that the state will repay its bond debt, I strongly disagree that we are helpless victims of the recession. Our 12.4 percent unemployment, unfriendly business climate and runaway state spending must be addressed if we are to pull out of our financial abyss.
It’s time for straight talk and a reality check. Blaming the recent economic downturn for California’s woes ignores many of the deeper underlying problems.
Treasurer Lockyer quickly passes over the fact that California’s unemployment rate is the second highest in the country. Our state lost 1.2 million private sector jobs from October 2007 to October 2010. More than 141,000 people left California during a twelve month period in 2008-09 because they could not find work. Jobs and opportunity continue to disappear because of high taxes, costly regulations and job-killer policies.
For the fifth year in a row, Chief Executive magazine rated California as the worst state in the country to do business. According to CNBC’s 2010 ranking of “America’s Top States for Business,” California ranked 48th amongst the 50 states for the cost of doing business. The nonpartisan Tax Foundation found that California has the nation’s second-worst business tax climate. California taxpayers pay the highest sales and gas taxes in the nation, and some of the highest top personal income taxes.
Straight talking, state government has been spending more than it receives in revenues for over 10 years. 70 percent of our General Fund spending is locked-in due to big-government program growth and auto-pilot appropriations. Our accumulating debt to fund operations consumes an increasingly larger portion of the revenue pie, as our state annually maxes out its credit cards and pays higher risk adjusted interest rates on its debt.
The recession has merely shown the light on profligate spending. Since 2007 we have faced recurring budget deficits, some as high as $43 billion; there is no end in sight. The nonpartisan Legislative Analyst has projected multibillion-dollar deficits far into the future, even though annual revenues are expected to grow between 5.6% to 6.7% percent. Economic recovery alone will not dig California out of its deficit hole. Significant reductions in spending and increased revenues through private sector job creation must be implemented, in lieu of taxation.
Twice in 2009 the Legislature was forced to make mid-year budget adjustments to pay bills. The controller was forced to issue IOUs to taxpayers and vendors because the state was out of cash. Facing a $28 billion deficit today, in part due to a budget deal in October that spent $5-6 billion more than reasonably projected, Sacramento will have to make mid-year reductions again this year. We are dangerously close to yet another cash flow crisis.
So, while the Treasurer and I would agree that our state is still a good investment for bond holders, as they have a second priority claim on revenues, the message that we hear repeatedly from the taxpayers is to stop borrowing and live within our means.
Despite Mr. Lockyer’s assertions that California isn’t broken, ignoring reality will only further jeopardize our state’s fiscal stability. California will remain broken until we get government out of the way of job growth and come together behind a long-term plan to streamline and restructure the way the state does business. Only then will we be able to balance our budget once-and-for all.