Every once in a while California’s business leaders rouse themselves to opine on the state’s problems. Their latest effort, a letter to the governor and Legislature on how to solve the budget crisis, makes you wonder why they bother.
Let’s look at their letter point by point:
They begin by saying we need to fix the “underlying conditions” that got California in trouble. And who would quarrel with that? But they fail to identify those underlying conditions. Most people agree that the budget crisis is partly economic and temporary—the loss of revenues from the Great Recession—and partly structural. Where they disagree is over which structural factors to stress. The big tax cuts in the years of the Internet bubble? Unfunded increases in pensions and retiree health benefits for public workers? Three Strikes and other unfunded “something for nothing” initiative measures? Unprecedented amounts of borrowing for infrastructure and to cover deficits? Which of these would they fix? The business leaders don’t say.
Yes, they do call for a “workout” plan. The word immediately sends up warning flags. We’ve been here before. In 2004, in the wake of the recall, business leaders similarly called for a workout plan. They joined Arnold Schwarzenegger in promoting a ballot measure that involved borrowing $15 billion and putting new budget discipline language in the state Constitution. How did that work out? Seven years later we’re still paying off the debt from the last “workout.” The lesson? Beware of business leaders bearing workout plans.
There are more warning flags in this section. It is not true that “since 1998, every annual budget has spent more than it received in tax revenue.” In the go-go years of the late 1990s–how could our business leaders forget that wonderful moment?–the state ran large surpluses even after heeding the advice of business leaders to cut taxes and increase spending on infrastructure and education. The state ran an operating surplus again briefly at the height of the housing bubble. This may seem like quibbling. But it doesn’t inspire confidence when you’re would-be leaders haven’t read the budget documents, or can’t.
However, here’s where they go off the rails: “Constitutional spending controls must be put place to ensure fiscal discipline.” This is doubly wrong.
It’s wrong, first, because California right now is in no danger of spending too much, as they themselves seem to understand in their criticism of the Republicans who seek “an all-cuts budget that will scar California’s future.” The share of California’s resources spent by state government will fall next year to either a 40-or 45-year low.
It’s wrong, second, because California’s constitution is already chock-full of budget whips and chains imposing budget discipline in various ways. Among these is the constitutional spending limit on the state and local governments.
California’s business leaders ought to know about the spending limit. They wrote it. In the late 1980s, after business leaders realized that the Gann spending limit adopted by voters in 1979 was preventing the state and local governments from making needed improvements in schools and infrastructure, they joined in writing Proposition 111. That measure revised the state spending limit so public investment could keep pace with the growth of California’s economy. Today, state government is $18 billion below that limit.
You can see the confusion here. Business leaders don’t want the state to spend too little; business needs public investment. They don’t want a budget with deep cuts. Yet they still worry about too much spending even though the state is far below spending limit they themselves wrote. And they think the right response is to create even more constitutional whips and chains. Among them would be “performance metrics” against which to benchmark programs and a requirement that legislators spend more time judging the “effectiveness” of the laws. Yet it is hard to find a single California happy about the operation of all the constitutional shackles we’ve already imposed on ourselves. Why are business leaders, if they care about “effectiveness,” prescribing more of the medicine that has already proven to be poison?
The confusion deepens in the second point of the plan. If there are any programs that have proven to be ineffective in creating jobs, they are redevelopment and enterprise zones. This year, the governor and lawmakers have done what business leaders say government ought to do–sort out and eliminate what doesn’t work. And what’s the business response? To ignore the evidence of “the metrics” and pimp for preserving their own handouts. It is hard to take unserious people seriously.
Many pundits say that California can’t hope to overcome its governing crisis unless ordinary Californians get better informed and engaged. That’s asking a lot. I’d settle just for having better informed and engaged elites.