California's recurring budget problems call for serious reform. The recent budget deal in Sacramento relies heavily on borrowing and increased taxes, including the highest state sales tax in the country, but fails to close the budget gap. The Legislative Analyst's Office is now projecting an $8-billion budget gap for fiscal year 2009-10. Politicians are running out of options. High tax rates are moving jobs and spending out of the state. Borrowing will become increasingly expensive for the state, as California has been given the lowest rating on its general obligation debt of any state in the nation.
If California wants to be economically competitive, government spending must be brought under control. One solution is to establish an independent bipartisan commission to propose a package of budget cuts. To minimize the ability of special interests to secure favorable treatment, the Legislature and governor should be required to accept or reject the whole package, with no amendments allowed.
There are political advantages associated with forcing an up-or-down vote on an entire package of cuts. When a spending cut is directed at a specific program that benefits supporters of a particular legislator, it is political suicide for the legislator to support such an action. This problem repeatedly comes up in the budget process. In contrast, when a large group of programs faces funding cuts, the political impact hits a broad set of interest groups. Legislators are more likely to vote for the spending reductions because it's easier to justify them as beneficial to the entire state. Because the financial impact to special-interest groups is less concentrated, the political damage to any one legislator is significantly reduced.
A similar approach was used by Congress in dealing with military base closings. After the end of the Cold War, the Defense Department wanted to close military bases that were no longer needed. However, a military base closure imposes short-term economic hardship on the local economy surrounding the base. As a result, it was difficult to get congressional support for many justified closings. A bipartisan commission was set up to hold hearings and recommend a group of bases that should be closed. Congress and the president had to accept or reject the entire set of proposed base closings, with no modifications. The commission has successfully closed or downsized 706 military bases since 1988.
An earlier example of Congress limiting its own ability to politicize policy came in the form of the 1934 Reciprocal Trade Act. On the heels of extensive economic damage caused by a 60% increase in tariffs under the Smoot-Hawley Tariff Act of 1930, Congress limited its authority to pass tariffs motivated solely by special interests. When Congress is faced with a trade agreement negotiated by the president, the 1934 law forces lawmakers to vote the agreement up or down. As a result, the U.S. has followed a much more open international trade policy that has significantly improved our standard of living.
A California budget commission would evaluate the performance of all government programs: Has the program become outdated? Is the program or agency redundant? Does the program really deliver? Can the service be more efficiently provided by the private sector? Do the program's benefits outweigh the costs?
The commission would make spending-reduction recommendations to the Legislature. It could propose lower funding, outright elimination or privatization of state programs and agencies. As part of the budget resolution process, the Legislature would have to vote and the governor sign off on the commission's recommendations -- the entire package with no amendments.
This process could also provide state agencies clear performance standards. The possibility of program elimination or privatization would improve the quality of government services and lower costs.
If the Legislature does not see the wisdom in setting up an independent budget commission as a way to rein in out-of-control spending, proponents of responsible government could use the initiative process to force legislators' hands.
Robert Krol is a professor of economics at Cal State Northridge.