Happy Talk

Tuesday, December 11, 2012

Page 6

IN MY OPINION (Column)

Happy Talk

By JON COUPAL

According to several media accounts in the days since the election, California has turned a corner and will soon resume its rightful place as the best place in America—nay, the world—to live, raise a family and start a business. It’s Nirvana all over again.

Perhaps what started all this happy talk was a report on the state budget by the Legislative Analyst’s Office projecting budget surpluses starting with the 2014-15 budget. After years of budget deficits, the mere appearance of the word “surplus” caused mass swooning among pundits and politicians. Moreover, this also seemed to validate as a wise decision the electorate’s passage of Proposition 30, the $50 billion tax hike making California the most heavily taxed state in the nation.

Heck, even Standard & Poor’s called the passage of Prop 30 a “favorable” development for California’s credit rating. Take that, you supply side, free market purists!

In the wake of the LAO report was more good news in a seemingly favorable poll from the Public Policy Institute of California (PPIC). Headlines were downright orgasmic: “Renewed Hope in California Buoys Governor Brown” (San Jose Mercury News) and “Gov. Jerry Brown, State Budget Get Higher Marks in New Poll” (Los Angeles Times).

We regret being the lump of coal in the stocking, especially this time of year. But Howard Jarvis himself was a bit of a curmudgeon and we are compelled to carry on the tradition.

The cold, hard truth is that California is far from being out of the woods and absolutely nothing has been done to address our dysfunctional system of governance.

Take the LAO report. The Legislative Analyst himself, Mac Taylor, is known as a fairly straight shooter not given to “irrational exuberance.” Thus it’s no surprise that his report is chock full of caveats. First, LAO bases his positive outlook on the assumption that the majority party in the Legislature, now that it has secured a supermajority of more than two-thirds in each house, will restrain its well known penchant for overspending. I suppose we could also assume that you could leave an alcoholic in a room with a bottle of Jack Daniels for an evening and he wouldn’t touch it.

Taylor was therefore wise in stating that “caution is appropriate” because if some or all of the assumptions—including a rational resolution of the “fiscal cliff” at the federal level—do not come to pass “the out year operating surpluses” would “be lower or eliminated.”

Keep in mind that the LAO projections are for two years out. No one disputes that both this year and next, the state will continue to spend more money than it takes in.

The PPIC poll deserves a closer look as well beyond its characterization in the cheerleading headlines. For example, half of those surveyed believed that California was still headed in the “wrong direction” while only 44% of adults say “right direction.” And support continued to be very strong for a spending limit, something the majority party has wrongly kept off the ballot for two election cycles. Without spending restraint, today’s partying over the good news will surely lead to tomorrow’s hangover.

California continues to have an accumulated budget deficit of several billion dollars including more than $4 billion owed to various special funds. Our pension debt dwarfs the entire budget of several states and our overall tax and regulatory environment has caused states like Arizona and Texas to adopt programs directed specifically at California businesses to get them to relocate—a process already well underway. And, despite the “favorable” comment from Standard & Poor’s, our credit rating remains unchanged—dead last among all states.

Lest one think that we who opposed Proposition 30 because of the damage it will surely inflict on California’s economy are the only pessimists in the room, State Controller John Chiang (not Republican) issued a chilling warning after seeing the latest cash flow figures. After noting that revenues continue to fall short of projections, he cautioned that “this serves as a sobering reminder that, while the economy is expanding, it is doing so at a slow and uneven pace that will require the State to exercise care and discipline in how its fiscal affairs are managed in the coming year.”

The big unknown, of course, is how many high income individuals will flee the state. Yes, many will stay. But given that Proposition 30 has only magnified our reliance on the wealthy, it is clear we can’t afford to lose too many.

These are simply the harsh realities from those of us whom Gov. Brown has derided as “declinists.” We prefer to call ourselves “realists.”