California Commentary : An Appetite That’s Hard to Curb : Lawmakers are quick to find money to meet the public’s demands, but it’s hard for them to eliminate old goods.

On July 1, California entered the 1991 fiscal year without an approved budget. This week, Gov. George Deukmejian and the Legislature still are wrangling over the appropriate combination of tax hikes and budget cuts to close a projected gap of $3.6 billion.

Such a fiscal dilemma must strike one as puzzling in light of recent voter approval of a $15.5-billion initiative to improve our transportation infrastructure. One would think that these new revenues alone would be more than enough to bail California out of its budgetary crisis. Yet the Legislature has been forced to work overtime to come up with a package of tax increases and program cuts.

Is this the price the public is required to pay in order to undo the damages of more than 10 years of tax revolt? Have voter-mandated Proposition 13 tax restrictions and the Gann spending limit pushed our state government over the brink? To answer these questions, it might be instructive to look at the fiscal record and determine the extent of budgetary tightness.

If one simply looks at total state government spending in California, the initial findings are shocking but to a degree misleading. The total increased from $2.4 billion in 1962 to a $53.7 billion as projected in the “bare bones” 1991 budget offered by Deukmejian. Yet no adjustments are made in these figures for population gains or price increases. Obviously, if population is growing and prices are rising, state spending will need to increase just to keep pace.

But even after making these adjustments, the numbers still point to a burgeoning state government. For instance, per-capita price-adjusted state government spending jumped from $470 in 1962 to $1,290 under the 1991 budgetary proposal--an increase of 174%. Per capita, price-adjusted personal income rose only 57% during the same period. So to pay for this state spending, tax revenues as a percentage of personal income increased from 4.8% in 1962 to a projected 8.3% in 1991.

Still, the governor’s 1991 budgetary proposal is considered by the Legislature to be unrealistically lean. To prevent the cutbacks in mandated cost-of-living increases and other social and education programs, the Legislature is proposing an alternative budget that is $3 billion higher than the governor’s $54 billion. Under the Legislature’s version, the tax burden would increase to 8.7% in 1991.

So despite a tax revolt and laws designed to restrain the growth of state government, the facts clearly show that--even after adjusting for population gains and price increases--spending and taxation have continued to rise and absorb an increasing share of our personal income.

One might ask about the process that has had led to this situation. A major reason is that lawmakers can always find justification for “new and improved” public goods that better satisfy the voting public’s ever-changing needs and demands. But they seem unable to make the hard choice of eliminating goods that no longer are in great demand.

The private sector is forced by competition to make difficult choices about allocating scarce resources, but governments are under no such pressure. Thus our public servants evidently find it easier and more politically palatable to increase the size and scope of the public sector.

Case in point: When the public began to demand new freeways and better maintenance of existing roadways, the solution was to push through a proposition that specifically earmarked funds for the state’s transportation infrastructure. In November, voters will decide on a proposition that earmarks alcohol taxes for drug-related problems. This strategy of aiming new taxes straight at their targets allows the lawmakers to get around the public’s resistance to general-fund tax increases. The success of this strategy will surely lead to even greater increases in the share of income going to support government operations.

What is the outcome of such government profligacy? In a study of the impact of state and local taxes on economic growth, researchers at the Harris Bank in Chicago showed that an increasing state tax burden creates disincentives for the private sector. Over a period of three years, this leads to a shift of labor and capital resources toward states with lower tax burdens. At a time when the California economy is already hard-pressed to adjust to declining defense spending, the implications of this study’s findings on California’s economic growth are ominous.