Government Spending Gone Wild: California's Record Setting Budget


California legislators and Governor Jerry Brown just approved the state’s largest budget to date at $156.3 billion, continuing the Golden State’s affinity for out-of-control spending. The budget plan, which goes into effect on July 1st, includes funding for greater preschool access, increasing welfare grants, and expanding public health care. Despite the looming $74 billion unfunded teachers’ pension liability, lawmakers even included plenty of funding for the high-speed railway.

In 2008, Californians voted in favor of Proposition 1A, approving borrowing over $9 billion to fund a high-speed railway that could take a train from Los Angeles to San Francisco in only 2 hours and 40 minutes. The ballot measure was backed by 8,000 words of legislation, now under close scrutiny. Last November, a Sacramento judge ruled that the state agency was not in compliance with the strict language of the proposition. With those funds tied up in court, the recent budget allots 25 percent of profits from the state’s cap and trade program for construction.

The budget sets the general fund, which pays for most of California’s expenditures, at $108 billion, a major 9.6 percent boost over last year. Income taxes supplied 67 percent of the general fund for fiscal year 2012-2013, and the latest budget relies on the income and sales tax increases from a November 2012 ballot initiative. These increases expire after seven and four years, respectively, which will likely leave legislators scrambling for new revenue to maintain the state’s reckless spending.

California is oft noted for its fiscal troubles, having one of the worst credit ratings of all of the states, second to Illinois. Some of these difficulties stem from not saving during times of expansion to prepare for future recessions. In an effort to change, the legislature has deferred to voters the final decision on the California Rainy Day Budget Stabilization Fund Act. If passed, the proposition would require the state’s controller to deposit 1.5 percent of general fund and capital gains revenues into the Budget Stabilization Account (BSA) when they exceed 8 percent of the general fund.

This savings plan could improve California’s credit rating, but first, the state must pay down its debt. The proposition would also require that starting in 2015 and lasting until 2030, 50 percent of BSA revenues be used to pay outstanding fiscal obligations. While this might be a step in the right direction, based on current projections of general fund revenues and California’s debts, it will take decades for the state to pay its obligations and the BSA will grow at a glacial pace. With high-speed rail construction estimated to cost $68 billion and last until 2029, it’s clear that California legislators should reassess priorities and focus on maintaining financial solvency. This will require taking bolder steps toward reining in state spending and imposing real fiscal discipline in Sacramento.