State Taxes: Bite the Bullet

When Elizabeth G. Hill, the Legislature’s nonpartisan fiscal advisor, puts headlines like “Huge Problem Looming” in her 2003 fiscal outlook, California’s elected officials had better perk up their ears. Hill, a master of understatement, adds that “this year [2003] will be much harder than the last.” The 2002 struggle to paste over a $24-billion deficit was the longest and one of the meanest in state history. The state’s budget collapse has become at least as dire as the power crisis: Elected leaders can either agree on painful solutions -- including taxes -- or be labeled failures in the history books.

The Legislature and Gov. Gray Davis face a staggering shortfall of $21.1 billion in the next fiscal year, beginning July 1, including $6 billion left over from this fiscal year. It’s impossible to bridge that with cuts alone without devastating state services, from children’s health care to coastal protection. Even worse, Davis declared Thursday that Hill’s forecast was too optimistic, but he didn’t say by how much.

Much of this year’s shortfall of $24 billion on a total budget of $99 billion was “covered” by the smoke and mirrors of loans and delayed payments, part of a failed bet that the economy would recover. Such tricks can’t be used twice: Each loan or delay contributes to coming years’ projected deficits. Even when the recession passes, spending will exceed expected revenue, Hill said.

There is plenty of blame to go around. Republicans accused the Democrats of wanton overspending in surplus years fueled by rising stock markets. But appropriations, requiring a two-thirds vote, couldn’t have gotten through without GOP support.

Davis, finally showing some grit now that the election is won, called the Legislature into special session Dec. 9 to find $5 billion in cuts from the current budget. Every department in state government should expect to emerge smaller.

As for the next fiscal year, complicated fakery won’t work and new taxes as well as deep cuts are unavoidable. The so-called car tax should have been restored this year to its 1999 levels, and next year will have to be. The same for temporarily reimposing higher top state income tax brackets and extending the sales tax to goods and services such as auto repairs, sports events and engineering and lawyer fees that are now oddly exempted.

Republicans keep pounding the tired line that they will oppose any new tax. They should drop the bluster now. Davis and the leaders of both parties in the Legislature need to dig deep for the patience and cooperation they have lacked.