Solving the Budget Crisis: Just Charge It?

Forget for a moment all that government jargon about fiscal years, general funds, grants, shifts and rollovers. Maybe the best way to look at this new state budget fight is through the eyes of an ordinary working couple, as they might their own financial situation.

They’re facing up to the reality, let’s say, that the family income is falling. But they’re both still working long hours, so they reject the notion of burdening themselves with an extra job. Since increased income is out, they set about trying to reduce their spending--and, of course, they’re arguing.

Amy’s braces or Jeff’s tuition? Fix the air conditioner or buy new tires? Cancel the anniversary night out or scrub the Dodger game? Maybe all have to go.

But wait! What about plastic --credit cards and installment plans? Spread out payments over a longer period. Bank on better times.

No way, says Pete Wilson. He looks at his partner and doesn’t trust what he sees. No discipline here, he thinks. If the family can’t bring spending under control now and uses plastic, bigger bills will pile up and he’ll be forced to find additional income.

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A more complex version of this debate likely will be waged over the scrimpy $51.2-billion budget that Gov. Wilson proposed on Friday for the fiscal year that begins July 1. It is a spending plan that is 11% smaller than the present budget and envisions such cutbacks as eliminating dental care for welfare mothers, wiping out the renters tax credit and saddling college students with more hefty fee increases.

Wilson has managed to frame the issue with only two principal options for the Legislature, his partner in the family of Capitol decision-makers. One option is taxes. The governor adamantly opposes any major new tax increase, however, and no legislator is advocating one either. There is support among Democrats for extending a temporary half-cent sales tax scheduled to expire July 1, but Wilson so far opposes the idea. Therefore, the Legislature would seem to be left with just the second option: Deeper spending cuts.

But there actually is a third option: Plastic.

A brief semantics lesson may be useful here. Plastic universally is referred to in the Capitol as a rollover --pushing debt from one year into the next. In public, however, many politicians prefer other terms. Democrats talk about two-year budgets or multi-year plans . Wilson just calls it deficit financing.

Faced with a similar reduction in revenues last year, Democratic lawmakers briefly suggested rolling over some debt and planning two years ahead. So did state Treasurer Kathleen Brown. Their assumption was that California’s economy would begin recovering this year and start replenishing the state treasury, so the distress of program cuts could be legitimately eased. But to protect the state if the economy didn’t turn around, Brown also proposed triggers that would automatically cut spending and/or raise taxes.

Wilson would have none of it.

“We must refuse to imprison California in the same dangerous deficit spending from which Congress has never managed to free the country,” the governor said. “Deficit spending always does require delayed tax increases.”

Wilson prevailed but paid a steep price politically. Gridlock, IOUs and a painfully late budget sank his popularity to the lowest of any governor in modern times.

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Honest debate on this subject suffers from myth.

One myth is that California’s state government is required by law to have a balanced budget. It is not. There are balanced-budget requirements in 38 other states, however.

Another myth is that Sacramento does not sanction deficit financing. It has and it does. The state used it all through the Great Depression. As recently as 1983, then-Gov. George Deukmejian turned to deficit financing--calling it a fiscal rescue plan --to erase $1.5 billion in red ink over an 18-month period.

Even under Wilson there has been deficit financing, some planned and some not. The state this year is spending nearly $1 billion on schools and community colleges and not showing it on the current books, justifying this shell game on grounds that the money is a loan to be repaid later. Wilson just proposed another such $540-million loan for next year.

Beyond that, Wilson’s government spent $2.2 billion more than it took in during his first full fiscal year in office. That unplanned debt was rolled over into the current year, which now is projected to end $2.1 billion in the red.

Indeed, the betting is that next summer’s budget agreement will include some deficit financing plus extension of the temporary sales tax. In return, Wilson will get workers’ compensation reform, his business tax incentives and government streamlining.

Then Amy can get her teeth fixed and Jeff can stay in school--they and thousands of other Californians.