When I first came to California to write editorials and columns for the Orange County Register in 1987, the state was in one of its periodic economic upswings, enjoying the final years of President Reagan’s tax-cut economic boom. Revenue was flowing in so fast to the state treasury, it triggered Proposition 4 from 1979, the Gann Limit, which mandated rebates of spiking revenue.
Based on 1986 tax returns — so I didn’t get one — the rebates were from $32 to $236 and went to 13 million taxpayers.
Then in 1990 mistaken voters passed Proposition 111, which curtailed the Gann Limit and increased taxes. President Bush broke his 1988 solemn pledge at the Republican National Convention, “Read my lips, no new taxes!” As a result, that tipped the national economy into recession. Republican Pete Wilson was elected that year to be governor of California.
California slid down the roller-coaster budget cycle, causing a deficit of $12.6 billion. As the recession dug in, Wilson pushed for a $7.6 billion tax increase. In those days, Republicans in the Legislature were close to parity with Democrats, so some of their votes were needed to pass a tax increase.
The main holdout was Assemblyman Tom McClintock, later a state senator and now a U.S. congressman. Wilson reportedly “backed the defiant McClintock into a corner and angrily called him ‘[expletive] irrelevant.’” McClintock stood firm, but the tax increase passed anyway.
The tax increase didn’t work. Revenues actually dropped, from $42 billion in fiscal 1991-92 to $40.1 billion in 1993-94. Only after most of the tax increases fell off in 1995 did revenues rise again, to $46.3 billion in 1995-96.
By then California was in the midst of the dot-com boom. Revenues soared to $80.6 billion in 2002-03 — doubling in just nine years — and Gov. Gray Davis and the Legislature, both Democratic, blew every penny of it. Spending rose from $57.9 billion in 1998-99 to $78.1 billion in 2000-01. A 35% increase in just two years.
Economists said we were in a new, recession-proof economy. But I wrote at least six editorials in the Register warning, “The business cycle has not been repealed.” The dot-com bust hit hard, sparking a deficit of $35 billion, and major cuts. That, and other failures such as the electricity crisis, laid the groundwork for Davis’ recall in 2003.
Gov. Arnold Schwarzenegger bounded into office that year promising to “blow up the boxes” of government waste. He held the line on spending in his first two years. Then in 2005 he lost a special election of four reform planks he pushed (of eight total), including teacher tenure reform and spending limits. After the loss, he terminated all fiscal caution.
General-fund spending soared again, from $79.8 billion in 2005-06 to $101.4 billion in 2007-08. That was $21.6 billion in new spending, a 27% increase in just two years.
The Great Recession slammed the Golden State in 2008. In his January 2009 State of the State address, Arnold groaned, “The $42 billion deficit is a rock upon our chest and we cannot breathe until we get it off.” He tried to do that with a record tax increase.
McClintock later branded it, “Schwarzenegger’s folly … The taxes were supposed to produce $13 billion in additional revenue. But after nine months, California’s sales tax collections are down $270 million; income tax collections are down $10 billion.” There also were big spending cuts.
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In 2010 Jerry Brown was elected governor and held spending to the increase in state revenues. Unfortunately, he got voters to pass the Proposition 30 tax increase of $7 billion — still effectively a $6 billion tax cut, as it replaced Arnold’s expiring $13 billion tax.
That brings us to Gov. Gavin Newsom, whose nearly $100 billion surplus last year was another missed chance to reform state finances to tame the roller coaster. Although, under the Gann Limit, rebates up to $250 went to 23 million Californians. This time, I got one.
Now we have a $31.5 billion budget deficit, according to the May Revision of his budget proposal.
In the 1980s, when I drove out for fun in the sun, the state’s population boomed by 6 million. Now it’s shrinking. Perhaps there’s a connection.
John Seiler is on the SCNG editorial board. Email: firstname.lastname@example.org