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Time to listen to experience

October 13, 2008|GEORGE SKELTON

SACRAMENTO — State Treasurer Bill Lockyer couldn't stand it anymore -- that Republican mantra: "We don't have a revenue problem. We have a spending problem." So the Democrat did some calculating.

He found that a couple of big programs Democrats traditionally try to protect -- welfare and K-12 education -- actually have been costing the state less over the last decade after taking into account population growth and inflation.

Conversely, two major programs advocated by Republicans -- prisons and the car tax cut -- have grown significantly in cost.

Yes, the car tax cut is a very expensive state expenditure. That's because all the revenue from that tax -- the vehicle license fee -- had gone to local governments. When Gov. Arnold Schwarzenegger sharply whacked the fee his first day in office, he also -- in an act of budget mutilation -- generously agreed to make up for local government's revenue loss with money from the state.

Five years later, the fee cut amounts to a $6-billion annual state spending program.

"We're spending more on programs that Republicans don't want to cut," Lockyer says. "Yet, they don't want to raise taxes to pay for the programs."

Lockyer dug into state spending figures from July 1, 1998, to June 30, 2008, a period spanning three governors. They showed that when adjusted for inflation and population growth (a combined 4.6% annual rise):

Welfare -- called CalWORKS -- declined an average 7.6% in annual cost.

State spending for K-12 schools didn't quite keep up with inflation and population, falling slightly.

The university system barely stayed even.

Benefits for low-income aged, blind and disabled gained less than 1% annually.

Medi-Cal healthcare costs for the poor rose an average 3.6% a year, far short of the runaway inflation in medical care.

Prison costs increased 6.7% each year.

And the car tax cut has cost the state about 25% more every year, on average.

Those big programs consume about 90% of the $103-billion general fund.

Lockyer's point was that although state government -- currently being battered by the slumping economy -- certainly has a spending problem, it also has an undeniable revenue shortage.

The treasurer unloaded his numbers on me after I called to ask how he'd solve the state's never-ending fiscal crisis, which flared again last week practically before the ink had dried on the new budget signed by Schwarzenegger. The state already was down $3 billion in projected revenue, and virtually everyone expects the hole to grow much deeper.

The fact that the state's gimmicky spending plan already was unraveling didn't surprise Lockyer, who had called it "the most irresponsible budget of the past half-century . . . banana republic financing."

Now, however, Lockyer is softening the rhetoric, trying not to scare off investors as he attempts to acquire a bridge loan for the state. He'll be offering $4 billion in revenue anticipation notes starting Tuesday. Later he'll try to sell an additional $3 billion.

The cash is desperately needed to tide over the state until the big tax bucks start arriving in spring, hitting their peak on April 15. It's routine, short-term borrowing that occurs practically every year, regardless of budget red ink.

But if Lockyer can't peddle the notes in this tight financial market, the state may have to beg a loan from the U.S. Treasury. He probably will unload them, because where can one find a safer investment today? The state never has defaulted on a loan, Lockyer says, and the tax-free interest is expected to be around 4%.

Even if the notes sell, however, it won't help balance the books in Sacramento.

For that, Lockyer says, Republicans need to agree on tax hikes and Democrats have to make more cuts. He suggests raising the sales tax by one cent on the dollar -- as Schwarzenegger advocated late in the budget negotiations -- and perhaps cutting programs across the board.

"Don't borrow and make a deeper hole," he cautions. "The worst choice would be to borrow for 30 years and spend it in one or two."

That essentially happened during Schwarzenegger's first year in office. The governor -- backed by most officeholders, including Lockyer -- talked voters into approving $15 billion in bonds to pay for everyday expenses. Otherwise, Lockyer recalls, "the cuts would have been devastating."

But no worse than now. It's past the time of reckoning.

Lockyer is one of the few remaining old hands in Sacramento: 35 years in elective state office, including eight as attorney general and 25 in the Legislature, the last four as Senate leader.

I also called another veteran, Lt. Gov. John Garamendi, who plans to run for governor in 2010. He was a legislator for 16 years, including four as chairman of the Senate Revenue and Taxation Committee. The Democrat was twice elected state insurance commissioner.

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