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State Budget Is Built on Pixie Dust : The Sacramento 'imagineers' balanced the books on a miracle 1996 economy and federal funds that may not come through.

August 13, 1995|TOM McCLINTOCK | Tom McClintock, a former member of the California Assembly, is the director of the Claremont Institute's Golden State Policy Center

In Burbank, the creative technicians at Disney use the term imagineering to describe the process of letting their imaginations run wild and then trying to engineer fantasy into reality. In Sacramento, the creative politicians at the Capitol use the term budgeting to describe a similar exercise. The principal difference is that the Disney folks are good at it.

The "imagineers" in Sacramento have once again produced a budget that fantasizes much higher revenues than the state will receive and much lower expenditures than the state has authorized, with virtually no budget reserve. Thus, every miscalculation will immediately translate into red ink, piling onto the already staggering debt load shouldered by California's taxpayers.

Since 1990, California's economy has significantly underperformed the rest of the nation, dragged down by one of the heaviest tax and regulatory burdens in the country.

Nevertheless, California's new budget is based on predictions of a miraculous economic explosion in 1996, including a 33% jump in building permits.

Last year, personal income in California grew only half as fast as in the rest of the country, but next year, the budget calls for an economy that creates a 33% jump in building permits. Last year, California's employment grew at only one-third the national rate. Next year, it must grow 25% faster than the rest of the country. Taxpayers will make up the difference between fantasy and reality. Meanwhile, the budget counts on a $500-million federal gift that Washington has not even agreed to.

In their defense, Sacramento's imagineers are quick to point out that the budget's economic forecasts are "mid-range estimates, when compared to other forecasters." That's an important distinction, since the "other forecasters" they use for comparison have been very good at overestimating the state's performance in past years. Economists such as Arthur Laffer, who have been consistently correct in predicting California's economy, are far more pessimistic. Laffer observes that California's economy now drags along at the bottom of national numbers, on its way to becoming a "perpetual West Virginia."

On the expenditure side, the budget is balanced by significant and overdue cuts in social welfare spending. But there's a hitch. The cuts can't take effect until waivers are granted by the federal government or federal laws are changed.

Yet the budget assumes that these authorizations will soon take effect. California will run a deficit up to $1.5 million every day the authorizations are delayed. That's a very likely scenario. That state is still waiting for waivers for cuts made last year. The same imprudence last year added millions of dollars to the deficit.

In addition, a number of court cases are pending against the state for past fiscal gimmicks. For example, past budget games have shorted the state's pension system of nearly $1 billion. Court cases challenging state raids of this nature--which are part of the state's structural deficit--are very likely to add $2 billion to the state's obligations, yet no reserve has been set aside.

A press release from the budget's author boasts: "Without any gimmicks, tricks or smoke and mirrors, the proposed 1995-96 budget is balanced and even has a small reserve of $41 million." "Small" is putting it mildly. It amounts to 95/100ths of 1% of the state general fund. The imagineers' new budget will fly only with ample quantities of faith and trust and a little of Tinker Bell's pixie dust.

The difference between the fantasy of this year's state budget and the reality of the state's ailing economy will be measured by a growing deficit that future taxpayers will bear. Meanwhile, the state continues to carry at least $2.5 billion of debt from past years, or about $300 per family, which California taxpayers must eventually pay.

Kudos to those few legislators who stood in the face of intimidation and pressure to vote against this wasteful and irresponsible budget. That this year's budget was passed by a bipartisan vote should not be hailed as a breach in "gridlock." Instead, support for this business-as-usual budget, which will continue to drag California to its knees, should be seen for what it is: a sad commentary on the quality of political leadership in California.

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