A Year for Biting the Bullet

Ever the diplomat and master of understatement, Elizabeth G. Hill, the Legislature’s nonpartisan fiscal analyst, says Gov. Gray Davis and the Legislature face “a very challenging problem” in the state’s $12-billion shortfall in revenues. Adding historical perspective, she noted that the budget deficit isn’t nearly as bad as the one the state had in the recession of the early 1990s.

The 1990s problem was horrible. This year’s dilemma is merely awful, with the makings of a protracted election-year stalemate over spending and taxes.

Characteristically, Hill demurred when asked whether the lawmakers--her bosses--should raise taxes to help cover the budget gap. “That’s a policy issue” for the lawmakers to decide, she said Wednesday, but she added that deficit reduction should be a balanced program of budget cuts and revenue improvements. In other words, don’t rule out tax or fee increases as some Republicans in the Legislature already have.

In fact, the downturn in the economy and the state’s budget problems provide the Legislature with an opportunity to fix some of the costly flaws and inequities that riddle the state tax system. Potential options for the Legislature include the elimination of ineffective or inefficient tax credits and deductions, many of them special breaks cut for businesses over the years.

Hill also listed the potential for broadening tax bases and raising rates on a temporary basis as was done in the early 1990s.

It’s fortunate that the state cannot do what the federal government is doing: going into debt to cover the increased costs of a recession, not to mention the bigger gap that proposed tax cuts would cause. The state Constitution requires Davis to submit a balanced budget in January for the fiscal year starting July 1. That makes it politically difficult for the governor and Legislature. They must bite the bullet now and cannot push the pain off to a later year, or generation.

Davis has moved to cut the current budget by more than $2 billion, but Hill notes that about $1.5 billion of that is one-time-only expenditure. The Legislature needs to trim ongoing spending more vigorously to prevent deficits from recurring year after year.

The first step in solving the year’s fiscal crisis, however, is to agree on a combination of budget cuts and some tax and fee increases on those who can most afford them. Then the rest of the job will be far easier and less painful.