What They’re Saying About the California Budget Crisis

Comments from leaders and policy-makers:

• Senate President Pro Tem John Burton, speaking to reporters on September 3, said the $98 billion state budget, approved two months late, didn’t solve the state’s fiscal woes. “It was basically a get-out-alive deal, rather than solve any problems.” He said one of the first bills introduced after the new Legislature is sworn in December 2 will be a measure to add 10 percent and 11 percent income tax brackets, the so-called soak-the-rich measure he proposed this year but was rejected by the Senate. He said he would like to see the income tax proposal on the March 2004 statewide ballot. He also said there would be quick action next year on a bill similar to the measure passed by the Senate on August 31 that would give the governor’s finance director authority to increase the car tax without further legislation. By not dealing with structural fiscal problems, Senator Burton said the 2003-04 Legislature may be forced to “deal with a structural change in the budget – both in the process, I think, and in revenues.” (Reports in the San Diego Union-Tribune, Contra Costa Times and San Jose Mercury News, September 4.)

• Governor Gray Davis, speaking to reporters, said he would veto more than the $750 million that the Legislature asked as part of the budget deal, but he said he expects a “single digit” deficit by the end of this fiscal year. Others have projected a deficit growing to as much as $15 billion. (San Diego Union-Tribune, September 4.) “We have a $24 billion shortfall that we are closing, and we also have to think about the problems next year and the year after. (This budget was) the best we could do under extremely difficult circumstances.” (The Associated Press, September 3.)

• Senate GOP Leader Jim Brulte: “Frankly, unfortunately, I think this budget is mostly smoke and mirrors.” (Contra Costa Times, September 4.)

• Even if the governor’s budget proposals were adopted and work, the state would still face a shortfall of about $5 billion because of overstated revenues and understated expenditures, Legislative Analyst Elizabeth Hill reported February 20. Thus the state’s budget woes have grown from $12.5 billion in January to a record $15.5 billion (counting the $2.2 billion in recent budget-cutting actions). Here is a link to the analyst’s Web site for access to several reports, including suggested or recommended actions: www.lao.ca.gov

• State Controller Kathleen Connell warned that the state will be almost out of cash by the end of the fiscal year June 30 and probably will have to borrow $5 billion in 2002-03. She said that even Governor Gray Davis’ optimistic projection sees $2 billion in borrowing in the next fiscal year. She echoed views of the Legislative Analyst’s Office that the governor’s proposed budget overestimates revenues and federal funds and underestimates funding for mandated growth in school appropriations. She said the state faces a multiyear problem. “… we think the cash situation in July 2003 may be more precarious than it is at the beginning of this fiscal year.” Davis spokesperson Steve Maviglio said Dr. Connell has been wrong in the past and “we expect this pattern to continue.” (Los Angeles Times, January 23, 2002.)

• Governor Gray Davis, in his January 8 State of the State address, proposed to close the $12 billion-plus budget gap -- without a tax increase. In addition to stressing the importance of security in the wake of the September 11 terrorist attacks and protecting funding for education “above all else,” he told a joint session of the Legislature: “The budget I will submit to you in two days will be fair, will preserve the major gains of the last three years, will protect local government – and will not increase taxes.” Among his basic budgeting principles: “I will not advocate raising taxes. That would further burden individuals and businesses struggling to stay afloat in these difficult economic times.” He said the budget crisis will be confronted with the same resolve that dealt with the energy crisis. He said the budget problem should be dealt with by a “combination of cutbacks, deferred spending, internal borrowing and accelerated revenue.”  He noted that his administration is trying to renegotiate costly electricity contracts, but implied that they were worth the price. “Make no mistake: My overriding imperative last year was to ensure that California had reliable electricity. By doing so, we protected health and safety, prevented a meltdown of our economy, kept business from leaving the state – and even created new jobs through expansions that were put on hold earlier in the year.”

• Senate Republican Leader Jim Brulte, reacting to the governor’s stance on taxes, questioned the depth of commitment to oppose higher taxes. “In Ontario (Saturday), President Bush said, ‘Taxes will be raised over my dead body. In Sacramento, Governor Davis said tonight, ‘I will not advocate tax increases.’ I think the contrast is striking.” (Riverside Press-Enterprise, January 9.)
• Senate President Pro Tem John  Burton, D-San Francisco: It will be “very, very, very difficult” to balance the budget without a tax increase. Senator Burton wants the wealthy to have to pay higher income taxes. Accelerated revenue, as the governor proposes, is “just a way of raising taxes. It’s like if you owe money every six months, we make you pay every month.” Gubernatorial aides said it was not a tax increase; simply a “standard accounting practice.” (Stockton Record, January 9.)
• Davis spokesman Steve Maviglio was asked to explain the governor’s comment about not advocating a tax increase. “He’s not advocating” a tax hike. “It may come to him (from the Legislature), but that’s not what he’s proposing.” He said the “final deal is going to come from the Legislature.” (Stockton Record, January 9.)
• Assembly Speaker Robert Hertzberg, D-Van Nuys: The governor’s proposals to stimulate the economy, including $30 billion in state school construction bonds over six years, are “great for California.” (The Associated Press, January 9.)
• Senate Budget Committee Chair Steve Peace, D-El Cajon: “I believe even having a discussion about a tax increase deflects us from getting the job done of producing a budget.” (San Diego Union-Tribune, January 9.)
• Assembly Member Carole Migden, D-San Francisco, commenting on the governor’s position on taxes, said he used “cleaver phraseology to be sure. But I think he is sincere. He is sending messages to us as legislators (who support tax increases) to tread with caution.” She wants to increase the taxes Californians pay when they register their cars. (Los Angeles Times, January 9.)
• “Blaming the state’s fiscal headache” just on the impending plunge in revenues “is like blaming a New Year’s Day hangover on the final drink from the night before. What preceded it mattered just as much.” – Dan Weintraub’s January 6 column in The Sacramento Bee, headlined “Riding the fiscal roller coaster.” The author surveys spending increases enacted over the past five years when the state’s general fund expanded at more than twice the rate of inflation and population growth. He also destroys the myth that the spending spree merely made up for several lean years in the early part of the 1990s.
• Senate President Pro Tem John Burton, calling for a $2.5-billion tax increase by imposing 10 and 11 percent personal income tax brackets, told reporters on January 3, said the state’s $12 billion budget problem should be solved fifty-fifty: half in tax increases and half in spending cuts. “There’s just no way, in my judgment and the judgment of most intelligent people, that you can cut your way through such a tremendous deficit. There’d be no state employees, no highway patrol.” He said soaking the rich shouldn’t be a political problem in this election year because only about 2 percent of the voting population would experience a tax increase.
• Assembly Member John Campbell, R-Irvine, reacting to Senator Burton’s proposal, said on January 3: “This is just their typical usual response when they spend too much, to try and figure out a way to create class warfare to hide a further dampening of economic activity.” (The Associated Press, January 3.)
• Assembly Republican Leader Dave Cox: “The state of California has been living beyond its means, and therefore the place we need to start is not additional taxes, it’s looking at expenditures.” (San Francisco Chronicle, January 4.)
• Steve Maviglio, spokesperson for Governor Gray Davis, on the Burton proposal: “The governor’s been focusing on spending cuts, not raising taxes.” (The Associated Press, January 3.)
• Assembly Speaker-designate Herb Wesson, regarding Senator Burton’s proposal: “Nothing is off the table.” (Los Angeles Times, January 4.)
• Senate Republican Leader Jim Brulte: “We have a huge deficit, and it’s not because of a lack of revenues. We have well over $10 billion more in revenues than we did when (Governor Pete) Wilson left office three years ago. But the state’s been spending like drunken sailors.” (Sacramento Bee, January 4.)
• Californians prefer reduced government spending, not higher taxes, according to a Field Institute public opinion survey released December 28. As reported in the Sacramento Bee, more than 60 percent – including 56 percent of Democrats – believe their taxes already are somewhat or much too high. About one-third of the 1,000 adults in the poll said their taxes are much too high, another third said their taxes are somewhat high, and 32 percent said their taxes are “about right.” The poll from December 1 to 11 followed  reports that the state is facing a budget shortfall of $12 billion or more over the next 18 months. Sixty-three percent of Republicans surveyed called for spending cuts, but there was less agreement on what specifically should be axed. Poll Director Mark DiCamillo was quoted by The Bee: “The public has a tough time making these decisions. They want it both ways. They don’t want increase in their taxes and they don’t want service cuts in their programs.” The tax burden question provided responses that are about average since the Field Institute started asking the question 25 years ago. In 1982, when California was in the midst of a tax-cutting frenzy that included Proposition 13 four years earlier, Field found that 78 percent said their taxes were much too high or somewhat high.
• “Annual excesses of expenditures over revenues will persist well beyond the budget year, absent corrective actions,” according to the Legislative Analyst’s Office in a December 19 report on the state’s fiscal problem. “The fact that the state’s projected annual operating deficit does not disappear over time indicates that the state cannot simply ‘grow itself’ out of its budget problem.” The analysis mentions revenue-related options, including three that were used in the 1990s. They are a two-year suspension of net operating loss deductions, two temporary high-income personal income tax brackets, and a sales tax increase.

• California faces a 2002-03 budget year “shortfall of $12.4 billion and potentially even more if the recovery we are assuming for next spring is delayed,” Legislative Analyst Elizabeth Hill reported on November 14. Here is a link to California’s Fiscal Outlook.

• Governor Gray Davis: “The size of the (state budget) problem is somewhere between $8 billion on the down side and $14 billion on the high side. No one can tell you with certainty the total size until we have more data.” (The governor spoke with reporters October 24 after briefing legislative leaders on the looming budget crisis.) Calling for a $150 million reduction in the current year’s budget and a hiring freeze for state government, except public safety agencies, the governor issued two executive orders on October 23. “… the national and state economies are experiencing a significant slowdown and as a result the state general fund is experiencing a significant decline in revenue,” the governor said in the orders, adding that the September 11 attacks resulted in major disruptions and uncertainty, plus increased costs for public safety measures. … when businesses are faced with declining revenues and increasing expenditures, they take actions to reduce spending … the (state) must take similar actions without delay to ensure that it lives within its means.”

• Governor Gray Davis: Asked whether a tax increase would be considered to help balance the budget, the governor responded to reporters on October 24: “Our focus is on cutting expenditures and living within our means. No one knows how this drama ends.” (Lobbyists for law enforcement and the health care industry are trying to interest the governor and legislators in their separate plans to get voters in March to approve two 0.25 percent sales tax increases to help cover costs related to the September 11 terrorist attacks.)

• Senate Republican Leader Jim Brulte: Urging the governor to call a special session to cut spending, he said: “Delay is our enemy. If we do not act, and act this year, California government will back into a position next year where we will probably have to either raise taxes or suspend Proposition 98 (the guaranteed level of funding for education). And I don’t want to do either of those.” (October 25 in the San Jose Mercury News.) Commenting on the prospects of a tax increase, Senator Brulte said, “No matter how you dress it up, a tax increase is a tax increase. Raising taxes in a recession is like putting leeches on a patient when they’re ill.” (October 25 in the San Francisco Chronicle.) Senator Brulte: Tax hikes are “unacceptable.” (October 25 in the Los Angeles Times.)

• Senate President Pro Tem John Burton: Suggesting that Republicans consider suspending existing tax cuts, such as the reduction in the vehicle license fee (car tax), he said, “It would be impossible to cut this much money out of the budget without hitting law enforcement and without hitting education, and (Republicans) know it. If they’re responsible, maybe there would be a suspension of some of the tax cuts they’ve been so busy supporting.” (October 25 in the Los Angeles Times.)

• Governor Gray Davis: “The terrible tragedy of September 11 has injected even more uncertainty into our economy, and we must prepare for greater revenue reductions as a result.” He gave department directors until October 22 to produce plans for 15 percent reductions in their budgets for 2002-03. Only public safety and fire-fighting spending would be spared from cuts, he said. Earlier, the governor had requested plans for cuts of up to 10 percent. (Governor’s memo to department directors, October 11.)

• Rob Wassmer, California State University-Sacramento economist, said the spending cuts would really be more than 15 percent. “We’ve been going anywhere from 3 to 5 to 7 percent increases each year, then to all of a sudden ask for 15 percent (reduction) – you have to add that to the increases we’re used to. That’s where it’s going to hurt the most, because we’ll be moving into this austerity when we were in an expansion period.” (Oakland Tribune, October 12.)

• Ted Gibson, chief economist, Department of Finance: As long as there are no further attacks on the nation or threats to the economy, California is in a good position to ride out the economic troubles. “I don’t see the structural damage to the economy (major job losses because of defense cuts) that we saw in the 1990s that caused that long and deep recession.” (San Jose Mercury News, October 12.)

• Steve Maviglio, spokesperson for Governor Davis: “Raising taxes in an economy that is hurting is a last resort.” (Contra Costa Times, October 12.)

• Democrat Assembly Member Tony Cardenas, chair of the Assembly Budget Committee, issued a press release saying that “while budget cuts may appear necessary, we need to ensure that education and public safety funding remain intact.” (Sacramento Bee, October 12.)

• Republican State Senator Dick Ackerman, member of the Senate Budget Committee: “It looks like (Governor Davis) is trying to blame the current status of the budget on the September 11 event. I think he’s kind of had his head in the sand.” (Sacramento Bee, October 12.)

• Democrat State Senator Steve Peace, chair of the Senate Budget Committee: “I would implement (budget cutbacks) immediately. Every dollar you save this year saves you two next year.” (San Francisco Chronicle, October 12.)

•  Legislative Analyst Elizabeth Hill: “A softness in September (revenues) is not  a good sign of where the budget is headed.” (San Francisco Chronicle, October 12.)

• Sandy Harrison, spokesman for the Department of Finance: “This is not to suggest every department will now be cut by 15 percent. It’s designed to create options and contingencies.” (San Francisco Chronicle, October 12.)

• Republican Assembly Member John Campbell, set to serve as lead Republican on the Assembly Budget Committee: “The budget was going to be in a severe deficit even if September 11 had never happened because of overspending in the last three years and because of a slumping economy before the attacks.” (Los Angeles Times, October 12.)

• Senate Budget Committee Chair Steve Peace on the magnitude of the budget problem: “ … the challenge in front of the Legislature next year is going to be worse than in 1991” when the state faced a record $14-billion deficit. Los Angeles Times (October 9).
• Senate Republican Leader Jim Brulte: “The Legislature has not been forced to make tough decisions in terms of spending for the last five or six years. I would fully expect there would have to be some rollback of existing programs. It’s going to be a very, very difficult year.” Los Angeles Times (October 9).
• Ted Gibson, chief economist of the state Department of Finance: “My sense is that we’re in for a tough three or four months here. We could see losing billions of dollars” in revenue. Los Angeles Times, October 9.
• Hilary McLean, spokesperson for Governor Davis: “Any governor would be loath to raise taxes, particularly in an election year. We’re probably going to be looking at trimming, borrowing and other types of cost savings.” Los Angeles Times (October 9).
• Ted Gibson, Department of Finance chief economist, on problems encountered in issuing bonds to repay the state general fund for electricity purchases: “If we can’t issue the bonds – and right now, the prospects are pretty bleak – we’ve got a real problem. Everyone is talking about the next budget year, but we could even be facing problems this year if we don’t take care of that soon.” Los Angeles Times (October 9).
• Governor Gray Davis on the slump in state revenues following a report that tax dollars from the state’s major sources were $559 million below expectations in September: “We’ve known for a long time that consumer spending was a big reason that the economy was performing slightly better than some of the pessimistic doomsayers were predicting. We have seen some evidence that consumers are pulling in their horns. That’s what worries me more than anything else.” Sacramento Bee (October 3).
• Senate President Pro Tem John Burton, on first-quarter revenues being $1 billion below last summer’s estimates: “We’re in for very difficult times. I think we may eat up the surplus (the state’s $2.6 billion budget reserve).” Los Angeles Times (October 3).
• Assembly Budget Committee Chair Tony Cardenas, reacting to the decline in revenues: “We knew revenue was going to be down. But this is certainly beyond our expectation. … We’re looking at cuts if it continues at this rate.” Los Angeles Times (October 3).
• Senate Republican Leader Jim Brulte, calling on the governor to examine spending bills carefully:  “Every dollar that is added to a general fund program is a dollar that builds the base of that program in future years.” Los Angeles Times (October 3).
• Brad Williams, senior economist for the Legislative Analyst’s Office, noted that the economic problems were largely unrelated to the September 11 terrorist attacks. “It appears as though the drop in the stock market and slowdown in economic activity that had occurred even before the September 11 attack is depressing revenues related to profits, capital gains, stock options and wages.” Los Angeles Times, October 3.