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PD Editorial: A more golden financial state for California

Published: Monday, November 19, 2012 at 3:00 a.m.
Last Modified: Friday, November 16, 2012 at 6:08 p.m.

Don’t look too quickly, but California may be on the verge of seeing something in Sacramento almost as rare as a gray wolf — a budget surplus.

As noted in the latest state legislative analyst’s report, thanks to a rebounding economy, prior budget cuts and the passage of Proposition 30 in the Nov. 6 election, there’s a “strong possibility” that California could see multi-billion operating surpluses within a few years.

These events bring California to a “promising moment,” the report by Legislative Analyst Mac Taylor states, “the possible end of a decade of acute state budget challenges.”

But there are still plenty of challenges ahead for Gov. Jerry Brown and legislators. Of immediate concern is that California faces a $1.9 billion deficit next year.

That’s a good deal more manageable than the $13 billion gap that was projected a year ago or the $25 billion shortfall that was predicted two years ago. Nonetheless, it’s a problem that has to be addressed before June when a budget needs to be approved.

The state had projected that it would have a surplus of $948 million by the end of the year. But that’s not going to materialize as state revenues have been coming in about $625 million lower than projected over the past two fiscal years. More significantly, the governor’s ambitious plan to bring in new revenue through the dissolution of redevelopment agencies has come up short by some $1.8 billion.

Instead of securing new revenue, the governor now stands to face dozens of costly and time-consuming lawsuits from local agencies statewide frustrated with how the redevelopment process was terminated, sometimes at great cost to municipalities and private contractors.

Meanwhile, the state also has seen expenses in other areas start to creep up.

Such spending creep will be the challenge before Gov. Brown, particularly in light of his party’s newfound supermajorities in both the Assembly and Senate. The temptation for Democrats to use that authority in authorizing new expenditures will be as great as the temptation to believe that California is through the worst of it.

Yes, the legislative analyst is predicting a surplus of $1 billion by the end of the 20114-15 fiscal year and a surplus of up to $9 billion in 2017-18. But all of that is predicated on two grand assumptions — robust economic growth and legislative “restraint in augmenting current program levels.”

In other words, now that California has helped Sacramento get through its fiscal pinch, Democrats need to keep their paws off the new revenue if the state has any hope of getting back on an even keel.

We encourage legislators to head the legislative analyst’s advice to use whatever surpluses that materialize to build up the “rainy day” reserve that was envisioned in Proposition 58, which voters approved in 2004.

The state also needs to get serious about addressing the unfunded liability for teachers retirements. As we’ve noted before, teachers are not the source of the state’s pension problems, but their retirement system has been grossly underfunded by the state.

California also needs to get serious about reforming its overall tax structure.

Most of all, legislators need to remember that the only hope of getting California off of its revenue roller coaster is to do it on the way up. We’ve learned from experience that trying it on the downward slope doesn’t work.

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