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CALIFORNIA COMMENTARY : Clever Politics Don't End $4-Billion Deficits : Gov. Wilson's plan cooks the books, passes the tax buck to cities and counties and just hopes for the best.

May 31, 1993|KATHLEEN BROWN | Kathleen Brown is treasurer of the state of California.

Now more than ever, the state of California needs honesty, discipline and accountability to get its fiscal house back in order. But judging by the Wilson Administration's revised budget plan, the governor's idea of housecleaning is to continue to cram some problems into the closet and sweep others under the rug.

Pete Wilson's budget eliminates only a portion of the state's nearly $4-billion deficit and leaves the rest, most of it an unacknowledged off-budget loan to schools, to be dealt with by future taxpayers.

Wilson relies on overly optimistic economic assumptions, which have bedeviled the state's budget for the last three years and produced three consecutive rolling deficits. He fails to institute budget triggers or other fiscal safeguards that are needed to keep the budget in balance and protect against future fiscal uncertainties. And he forces counties to choose between raising taxes or laying off local police and firefighters.

Rolling over part of the deficit, passing the buck to counties to make the hard decision about a sales tax increase and cutting unpopular social programs all make for clever politics. But it's not smart fiscal strategy. In failing to provide a responsible "workout" plan for the state's massive $4-billion deficit, California's chief budget decision-maker is squandering an opportunity to pave the way for a meaningful fiscal and economic recovery for California.

The key missing ingredient is responsibility. Workout plans for fiscally troubled corporations don't restructure from the bottom; they start at the top, in company boardrooms, where CEOs are charged with making the hard decisions necessary to bring the books back into balance. But California's chief executive officer has proposed a plan that either ignores the really tough problems or passes the buck to local governments without the means or the decision-making abilities to get the job done.

The "you want it, you pay for it" argument may well take the political heat off Sacramento, but it further encourages the "cannibalization" process among local governments that ensures economic survival only to the fittest cities and counties.

Ultimately the issue comes down to jobs and building for California's economic future. But by cutting funds to local governments with no guarantee that replacement revenues will be approved by voters, the governor threatens to choke off fuel to the local engines of California's future economic growth. Without sure and certain revenues, cities and counties will not make investments in police, fire and municipal services critical to attracting and keeping businesses in California. Even the approval of local sales taxes won't stem the loss of jobs, particularly the high-wage positions Californians need for economic prosperity, because local officials will be tempted to seek maximum sales-tax revenues by favoring shopping malls and car dealerships, which provide low-wage jobs, over factories and housing construction projects. This is not only shortsighted; it fails to provide a fundamental framework for California's long-term economic vitality.

What's needed is a more fiscally responsible workout plan that acknowledges that the deficit is a state problem that should be shared by all 58 counties, not just those with the political will to raise local sales taxes. That is why I have recommended a three-year statewide extension of the half-cent sales tax pledged to paying off California's remaining debts through an independent, bipartisan California Economic Recovery Authority.

My deficit-elimination plan also protects against future deficits by requiring that the budget be part of a credible plan that includes conservative revenue and expenditure estimates, meaningful expenditure and/or revenue triggers, and caps on future outside borrowings. It places responsibility squarely on Sacramento to make the choices necessary to get California back on firm fiscal footing.

Is it politically clever? Not by half. It requires a politically unpopular extension of the sales tax, coupled with decisions to target specific programs for cuts or revenues to be raised in the event the budget falls out of balance. It forces California to wean itself from borrowing by essentially cutting up the state's credit cards and requiring it to live on cash.

Finally, it tells the brutal truth about the state's deficits and would prudently pay them off, and requires an end to politically easy but fiscally risky loans to cherished programs like schools.

What my plan lacks in political cleverness it makes up for in fiscal and economic responsibility. Extending the sales tax and adopting strict budget safeguards is strong medicine, but it may be California's only chance to cure its dangerous addiction to rolling deficits and short-term borrowing.

Moreover, by taking $4 billion off the budget table, it mitigates cuts to two of California's most powerful economic engines--local governments and the state's world-class system of public colleges and universities. In other words, it cleans up California's past mistakes with an eye firmly to the future. And it does it all without cooking the books, hiding deficits or hoping for the best without preparing for the worst.

Those things may make for clever politics, but they don't add up to a responsible fiscal strategy. Just ask the federal government.

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