A Matter of Dollars and Sense

The dirty little secret in California’s Capitol, regardless of any politician’s public claims, is that state budgets seldom are balanced. This government relies on deficit financing.

Sacramento may not be “mortgaging our children’s future” as blatantly as Washington, but it still has been running on red ink and hiding it by sleight of hand.

Along the presidential campaign trail, Gov. Pete Wilson constantly holds up California’s government as a fiscal model for the nation. Recently on NBC-TV’s “Meet the Press,” for example, he asserted:

“Unlike Washington, where they can have a debate about whether to balance the budget in seven years or 10, I have to do it every year. And I have to do it without the kind of thing that they do. They engage in deficit spending. We can’t do that.”

Wrong.

One of the longtime myths--now acknowledged by almost everybody in the Capitol--is that California’s state budget legally must be balanced. Thirty-seven states do require balanced budgets.

But California in the strapped ‘90s has faked it with gimmicks--including inflated projections of tax revenues and federal reimbursements, low estimates of school enrollments and welfare caseloads, “off-budget” spending, and creative borrowing schemes. Debt is rolled over from one fiscal year into the next. Last year, the governor and Legislature approved the biggest borrowing package in state history: $7 billion over two years. Interest the first year alone cost $200 million. A bank consortium was paid $35 million just to co-sign.

There’s a consensus that the latest $57.5-billion budget signed by Wilson after a 34-day legislative stalemate was more honest than most. But it still needed smoke and mirrors.

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“California may once again be leading the nation--this time in blazing new trails of state deficit spending,” a nonpartisan Citizens Budget Commission reported earlier this year.

“Instead of making difficult political choices by either cutting spending or raising revenues to balance the state budget, [lawmakers] have created multiple layers of year-end deficits. . . . California now holds the dubious distinction of having the highest proportion of short-term borrowing activity relative to its budget of any state in the nation. . . . [Its] top credit rating has slipped from one of the highest in the nation five years ago to one of the lowest. . . . California’s government lacks fiscal discipline.”

These aren’t the words of some political opportunist. The blue-ribbon commission is co-chaired by two of the most respected people ever to occupy Capitol offices: former legislative analyst A. Alan Post and onetime Republican Assembly Speaker Robert T. Monagan.

Noted the panel: “California cannot effectively address its many long-term problems--education, crime, infrastructure, transportation, health and welfare--without first eliminating its deficit.”

The venerable state Little Hoover Commission also has chimed in with a critical report. “For several years,” it began, “California has borrowed money to stay afloat--and then borrowed again [when] loans came due.

“At a personal level, such actions would be viewed as irresponsibly living beyond one’s means and flirting with financial ruin. When a state does it, the consequences are no less grave--and, in fact, are more so since millions of lives may be affected.”

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Fortunately, in one respect, the situation has gotten so out of hand that several efforts are afoot to force fiscal responsibility on the Capitol.

The citizens commission has recommended 31 steps to reform the budget process and, in effect, break the state’s habit of using its MasterCard to pay off the Visa, which is used to pay American Express.

It proposes, among other things, a strict balanced budget requirement and tough borrowing restrictions. Seeking to end gridlock and pork-barreling, it also contends budget passage should require only a majority vote, rather than the present two-thirds. And the Legislature, it says, should be forced to adjourn on July 1, start of the new fiscal year.

The California Constitutional Revision Commission on Friday tentatively adopted similar recommendations--plus combining the Senate and Assembly into a one-house Legislature--as part of a sweeping overhaul of California government, state to local. The commission’s aim is to prod the Legislature into offering voters a proposal on the November, 1996, ballot.

Indeed, as California approaches the next century, it has the best opportunity in decades to begin setting its books straight.

But right now, this place isn’t exactly the paragon of fiscal virtue that Gov. Wilson would have America’s voters believe.