Winter 2004

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Cal-Tax Commentary

Larry McCarthy is president of the California Taxpayers’ Association.

Governor Schwarzenegger’s first budget proposal is another signal for taxpayers that California’s long fiscal nightmare is ending.

The Schwarzenegger fiscal recovery strategy comes loaded with long-overdue reforms, no new taxes and faith in California voters.

His budget says emphatically that tax increases are not going to be the line of least resistance this time to deal with a budget crisis produced by financial mismanagement.

This budget also establishes a strategy to challenge waste and mismanagement in California's budget through an all-out “Performance Review Process.” The promise that waste, ineffective spending and fraud will not continue to absorb hard-earned taxpayer dollars is indeed great news for California. Such a rigorous evaluation of the spending base has not been done in the memory of veteran analysts and Capitol observers.

The $99.1 billion state budget proposal for the fiscal year starting July 1 is contingent upon voter approval of the governor’s economic recovery plan on the March ballot to address California’s $22 billion in carryover debt from the Davis Administration. Governor Schwarzenegger points out that during the past five years, state revenues grew by 25 percent, but spending increased by 43 percent. This irresponsible action must now be addressed.

The proposed 2004-05 budget is part of an economic recovery strategy to work out of the crisis over two years. The plan begins with voter approval of Propositions 57 and 58, the $15 billion budget recovery bond and the constitutional balanced budget amendment. These measures were placed on the ballot in December’s emergency session by rare bipartisan votes of the Senate and Assembly.

The next step is enactment of the budget that he introduced on January 9 to, as the governor put it, “attack the structural deficit with a responsible” spending plan.

The new administration’s final, but critical step in the recovery plan is to boost the state’s economy by improving the business climate, transforming California into the “powerful job-creating machine it once was.” Pro-business proposals are led by a March 1 deadline for legislative passage of significant workers compensation insurance reform. Failure to act will prompt the governor to pursue an initiative for the November ballot.

The governor’s budget sets up a systematic performance review process to attack waste and fraud in government programs such as well-documented cases of Medi-Cal provider fraud. The governor also cited abuses of overtime and sick leave among state prison correctional officers and the need to rein in public pension costs. He asks that state employees pay a little more for their own pensions, and for those yet to be hired there would be a less-lucrative retirement program.

The Department of Finance is to issue a report by May 1 detailing amounts of fraud and waste in government and proposing corrective actions.

An unmistakable sign that this governor is serious about reforming the way government operates to give taxpayers more bang for their bucks is his plan to encourage contracting with non-state entities for services. The administration will pursue a new constitutional amendment to permit the state to contract with the private sector for ministerial functions whenever it will reduce costs. Contracting out is utilized in governmental agencies across the country to improve quality of service and control cost through competition. The governor identifies a $100 million savings opportunity by simply giving school boards the authority to contract school transportation services. This is $100 million that can go directly into classrooms.

This budget signals a dramatic change from the state’s spending habits of the past. It is long overdue and critically necessary to deal with the extraordinarily serious fiscal problem California now faces.