State budget deficit hole gets deeper

Published online on Sunday, Sep. 20, 2009

The way Dave Doerr sees it, California's elected leaders ran for the wrong offices.

"They really ran to be Santa Claus, and made a mistake and filed for the Assembly and the Senate," said Doerr, the senior tax consultant for the California Taxpayers Association.

Doerr's reference is to a penchant of lawmakers and governors over the past three decades to spend whatever money they have on hand -- and promise even more -- then let succeeding budget drafters fend for themselves.

"They provide what I call the 'free lunch syndrome,' " said Doerr, who closely observed Capitol life as a top Assembly budget consultant for 40 years. "They pass programs, and they don't pass the funding to pay for them."

Doerr's observation is borne out by a Bee analysis of California's spending and debt patterns compared to other states,' which found California spends more per capita than the national average in every government program except highways and public welfare -- but consistently runs budget deficits and takes on more and more debt.

Those debts include about $246 billion in delays, deferrals and unfunded liabilities to fund schools, public works projects and public employee pensions.

From its beginning, California has had a kinetic economy. Gold propelled it into statehood. When the Gold Rush waned, there was wheat, fruit, real estate, movies, oil, defense, aerospace, computers -- and peaks and valleys with each.

That economy occasionally was reflected in state budgets. From 1945 to 1978, according to Department of Finance statistics, state government spent more general fund revenues than it collected in 11 of 34 years.

The relative kiddie carousel of budgetary ups and downs became a white-knuckle roller coaster in 1978 with the passage of Proposition 13, which cut property taxes and required a two-thirds vote of the Legislature to pass statewide taxes. Of the 32 budgets passed since, 19 have spent more than the state took in from tax revenues.

"The state got off track in general after Proposition 13 in terms of balancing spending with revenues," said Doerr, "and once they did, it wasn't long before they were way off track."

'Law of budget physics'

Prop. 13's primary mission was to cut property taxes and stabilize future increases, plus make it harder for lawmakers to raise other taxes. Many voters also saw the measure as a loud and clear shout to Capitol denizens to cut government spending.

Most political leaders didn't hear it that way.

Then-Gov. Jerry Brown and legislators used what state Treasurer Jesse Unruh called an "obscene" budget surplus of $5.8 billion to replace much of the property tax revenue that the initiative had stripped from schools and local government.

At the same time, they were eager to climb on the Prop. 13 bandwagon and cut nonproperty taxes as well -- about $1 billion worth in the first two years after the initiative passed.

Fueled by the simultaneous acts of taking over school financing and cutting taxes, state general fund spending jumped 39% from the last pre-Prop. 13 budget to the first post-Prop. 13 budget, and nearly doubled by Brown's last budget in 1982.

By the beginning of 1983, California government was broke and on the verge of issuing IOUs for the first time since the Great Depression.

"We lost our way," said Fred Silva, a senior policy adviser at the bipartisan policy reform group, California Forward. Formerly a key legislative aide, Silva helped draft the Legislature's postelection responses to Prop. 13 in 1978 and 1979. "We said, 'Gee, we can invent a new law of budget physics.' It was going to reduce state taxes and increase spending, and everybody thought we could do that ... and we found out we couldn't."