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Spending cuts and tax increases

Budget crisis

Posted: November 16, 2008 6:34 p.m.
Updated: November 17, 2008 4:30 a.m.

Well, here we go again with another version of the Sacramento budget crisis.

Californians were given a heads-up that the state is in deep trouble when, on Oct. 2, the governor sent a letter to the House of Representatives on the eve of the vote regarding the bailout of financial institutions.
Schwarzenegger wrote: "Absent a clear resolution to this financial crisis that restores confidence and liquidity to the credit markets, California and other states may be unable to obtain the necessary level of financing to maintain government operations and may be forced to turn to the Federal Treasury for short-term financing."

In essence, Gov. Schwarzenegger was requesting a $7 billion emergency loan from the Feds for the nuts-and-bolts operation of California. Because of the Wall Street dilemma, our state had been locked out of the credit market.

For many years, the state Legislature has been led by Democrats, who have been unwilling to keep spending in the same ballpark with revenue. Their unquenched thirst for more and more costly mandate-laden programs has been dependent on capital gains revenue.

The collapse of the real estate market was devastating in itself, but when Wall Street followed suit, capital gains have almost dried up completely. What to do?

Gov. Schwarzenegger has proposed $4.5 billion in spending cuts along with $4.4 billion in new taxes to increase revenue.

Placing himself squarely in the middle of liberals, who are opposed to spending cuts, and conservatives who reject tax increases, the governor at least recognizes the need for action.

His $2.5 billion cut in education funding for K-12 and community colleges, and his $320 million cut requiring state employees to take an extra day off per month without pay, have lobbyists and union leaders up in arms.

Fred Glass, spokesman for the California Federation of Teachers, said, "Before the budget disaster of last summer, California was already 46th in the nation in per-pupil funding. We can't cut anymore."

John Hard, vice president of Service Employees International Union, said the governor's asking for one unpaid day per month and eliminating two annual state holidays amounts to an unacceptable 5 percent pay cut.

On the other hand, Republicans have soundly ridiculed Gov. Schwarzenegger's 1 1/2 percent "temporary" sales tax increase.

They argue that increased taxes will result in the loss of many businesses that will rapidly leave the state, causing the tax burden to fall upon fewer taxpayers.

Republicans further object to the cost of allowing free social services and public education to illegal immigrants, especially in a declining economy.

When the state is faced with increased spending for the maintenance and construction of correctional facilities, the housing and care of institutionalized criminals who are here illegally appears unfeasible.

The Legislative Analyst's Office has requested that the state Legislature act quickly on the governor's proposals. The office is also suggesting that, given the unknown depth of our economic malaise, their own estimates of the deficit may be actually lower than their current expectations.

In addition, the analyst's office reports that the revenue decline will cost at least $22 billion in shortfalls each year from 2010-2014 if lawmakers do not take bold action now.

Beware of governmental officials who tell us to act now or else. Remember the $700 billion the federal government told us to fork over to Wall Street or else.

The kind of bold action the analyst's office seems to be suggesting is in the form of raising taxes. How bold is that? What about truly reining in spending by getting rid of costly duplicitous and failed programs?

Gov. Schwarzenegger has said, "We must stop the bleeding." Many argue we have been bleeding for years, and yet the legislators keep throwing on Band-Aids.

Most Americans who manage their own households realize that when their income drops, they must stop spending. Politicians, however, don't like to reduce spending because it's other peoples' money they are using.

It is not a bottomless money pit. It is taxpayers' money ... yours and mine.

Like him or not, at least Gov. Schwarzenegger has the ability to anticipate potential problems. Let us hope that this special legislative session successfully arrives at a workable solution that does not involve just throwing more taxpayers dollars at another temporary fix.

Paul B. Strickland Sr. is a resident of Santa Clarita. His column reflects his own views, not necessarily those of The Signal. "Right Here, Right Now" runs Mondays in The Signal and rotates among several local Republican writers.


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