State Budgets: California's slide into fiscal oblivion continues, with no end in sight. Despite lots of budget cuts this year, a $21 billion deficit looms. The politicians' solution? Stop selling high-definition TVs in the state.It's starting to become routine. Last February, Gov. Arnold Schwarzenegger signed a new spending plan with "real, lasting reforms" that would help close its $36 billion-plus deficit and ensure the state never got so out of fiscal whack again.
And just four months ago the Governator and California's worst-in-the-country legislature agreed to a plan to close a $24 billion budget gap by cutting spending amid a deep plunge in tax revenues.
Flash forward to this week when — no surprise here — the Legislative Analyst's Office announced the budget would show a $21 billion deficit in the current and coming fiscal years, much bigger than forecast earlier. Seems all the cuts didn't do the job.
Also on Wednesday, a study showed not only that this year's "reforms" achieved nothing, but that the deficits the state has run for over a decade — which are illegal under California's Constitution — would continue for years.
Welcome to the once-Golden State, where legislators seem to take delight in tearing down all the things that once made it the greatest place to live in America — and possibly the world.
For 18 years, the state has spent more than it has taken in. A lot more. Over that stretch, total spending grew 5.9% a year on average, to $144.5 billion. A general rule of thumb says states should increase spending no faster than the rate of growth in population plus inflation. Over the same period, California's population plus inflation grew just 4.4% a year, 25% slower than the actual budget.
According to a study earlier this year by the Reason Foundation, if the state had kept spending growth to 4.4%, instead of 5.9%, the state would today have a $15 billion surplus. Instead, in just the past three years, it has rung up deficits of $81 billion. This is the kind of fiscal profligacy one sees in Third World nations on the verge of collapse, not in the world's seventh-largest economy.
Why is this happening? Because in addition to spending too much, the state suffers from plunging tax revenues. But not because taxes are too low. California is losing employers and entrepreneurs by the thousands. They are fed up with soaring taxes and an aggressively hostile business environment.
For example, the state's ever-eager environmental regulators just this week vowed to ban big-screen TV sets. Reason: Big TVs use too much energy.
The "energy savings" are likely to be minimal. But because of the new rules, more retailers will go out of business, consumer costs will rise and tax revenues will drop. And those who want a big- screen, high-def TV will simply order online.
And this is just one thing, on one day. Hardly a week goes by that the state doesn't announce some new initiative, tax or regulation intended to make it harder on business to build or expand.
The results have been tragic. From January 2001 to this September, California's manufacturers — which, by the way, pay an average wage of about $60,000 a year — have slashed employment from 1.88 million to 1.295 million, destroying roughly 31% of the state's industrial base in a mere nine years.
California is besieged with such petty micromanaging that it's almost impossible to build factories or businesses there. The Tax Foundation ranks California 48th among the 50 states for its business tax environment.
But a costly labyrinth of regulations makes it even worse. A new study from California State University at Sacramento estimates regulations cost the state $492 billion per year — a toll that translates into 3.8 million fewer jobs, $211 billion less in worker pay and an annual tax on each small business equal to $57, 260.
Someday, residents of this once-well-governed state will wise up and throw those who are systematically destroying it out of office. Until then, they bear as much responsibility for the destruction as the hacks they've re-elected.