How the state budget deficit started

May 19, 2009 5:25:41 PM PDT
The state has dug itself a very deep hole and it's one that impacts cities and counties everywhere. Back in the late 1990's, during the dot-com bubble when the state was awash in money, so much money politicians thought they could increase spending and hand out tax breaks.

At the height of the dot-com boom Governor Grey Davis said California should use its new found wealth to improve health care and education.

"They put it into healthcare programs and most importantly they put it into education programs to reduce the class size in California," says ABC 7 political analyst Bruce Cain.

Cain says the legislature also agreed to a tax cut dramatically reducing the state's vehicle license fee. Those two acts are significant says Cain because when the dot-com bubble burst, the additional teachers still had to be paid.

Professor John Ellwood, Ph.D. from U.C. Berkeley's Goldman School, is a policy analyst specializing in public budgets. He says Governor Davis knew he was in trouble, tried to reinstate the car tax, and touched of a rebellion.

"A whole series of radio shows, morning radio shows, where the D.J.'s talking to people trying to get to work in their cars went ranting and raving on the evils of the car tax," says Ellwood.

Davis was ousted and on his first day in office Governor Arnold Schwarzenegger (R) repealed the car tax and California had what professor Cain calls structural deficit.

"We were destined to have problems because of the structural deficit, but the problems weren't destined necessarily to be as big as they are," says Cain.

Cain says before the world economic crisis really fouled things up, the governor and the legislature bumped along from year to year borrowing, but even then spending outstripped revenues.

The San Jose Mercury News did an analysis showing that under Schwarzenegger, spending has increased 35 percent. Still, population growth and inflation have increased 21.5 percent. That's a $10 billion difference, mostly because of increased costs for prisons and public health.

In 1994, Californians voted for three strikes and the prison population boomed.

Part of the rise in medical expenses is due to an aging population, but voters also mandated more money for health care and education.

"Voters basically get what they want," says Ellwood.

Professor Ellwood says the problem is voters don't always feel they should pay for what they want and lawmakers in Sacramento get that.

"I've never voted for tax increase in my life. I don't like taxes, people don't like taxes," says State Senator Abel Maldonado.

Senator Maldonado is one of many Sacramento politicians campaigning for the propositions on next Tuesday's ballot, which include tax hikes. Those are the tax hikes he doesn't like, but says they are necessary. He believes there is no way the state can cut its way out from under a $21 billion deficit.


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