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Davis' Borrowing Spree

January 14, 2002

There are things not to like about Gov. Gray Davis' $100-billion budget for the fiscal year beginning July 1, and both Democrats and Republicans in the Legislature are pointing them out with vigor. But considering that the state has been spending more than it is taking in, something had to give.

The recession has caused a yawning, $12.5-billion state revenue gap. Properly vowing to maintain gains in education, Davis proposed closing most of the divide with roughly $5 billion in budget cuts, $5 billion in long-term borrowing, more than $1 billion in new aid from the federal government and $142 million in new fees and penalties.

The major question is the wisdom of so much borrowing. One alternative is to raise taxes. But the Democratic chief executive, now seeking reelection, vowed not to propose a tax increase, which in his eyes undoubtedly would be an act of political suicide. That act of avoidance is surely better in the short term for the governor's political hide, but it's not better for taxpayers in the long run.

Davis didn't say he would object if someone else--the Legislature--sends a tax hike to his desk. Lawmakers should try something reasonable, possibly a temporary income surtax on the wealthy or a partial rollback in recent auto registration fee cuts. That would avoid shifting so much of the debt burden to a future generation in strung-out interest payments.

For the Record
Los Angeles Times Friday January 25, 2002 Home Edition California Part B Page 16 Metro Desk 2 inches; 50 words Type of Material: Correction; Editorial
State budget--A Times editorial Jan. 14 incorrectly said it would cost the state more than $4 billion to borrow $2.4 billion over a 20-year period. Gov. Gray Davis' budget called the $4-billion figure 'debt service,' which often is defined as interest on a loan. In this case, Finance Department officials said it referred to both interest and principal.

Loans are costly--more than $4 billion in interest over 20 years to borrow $2.4 billion against the state's future tobacco settlement payments, the money that all states receive from the negotiated settlement of lawsuits against the tobacco companies for the damage that cigarettes and other forms of tobacco do to the health of Americans. Some say that's what you do in rough times, borrow, particularly when interest rates are so low.

Republicans want Davis to cut more spending but are fuzzy in saying exactly where. In Davis' proposed budget, education already loses nearly $1 billion and health and human services $1.2 billion. Those categories account for 80% of general fund spending. Borrowing may be costly, but it does not violate the state Constitution, as some say. The document only says the governor must indicate where he's getting the money needed to balance the budget. Nor is this budget an exercise in bookkeeping trickery or duplicity, another criticism. Davis' budget is remarkably candid in detailing where the money comes from and goes, including interest costs.

Others call the budget a gamble because it is based on a predicted midyear economic upturn. But all of the state's budgets are gambles since they forecast trends 18 months into the future. Davis will revise the budget in May based on new economic data. Even after that, the budget can be changed at any time to adjust to unexpected circumstances.

One major mistake by Davis was to propose a $234-million savings by denying a 3.9% state cost-of-living increase to the aged, blind and disabled and some who are in the welfare-to-work programs. "Immoral," thundered John Burton, the Senate chief and the godfather of these annual increases since Ronald Reagan was governor. This money will be restored by the Legislature. That's one thing you can take to the bank.

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