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California Needs Credit Cards to Pay Monthly Bills

Schwarzenegger's talk of $7 billion bailout shows state's spending addiction

Adrian Moore
October 7, 2008

Gov. Arnold Schwarzenegger says California may need a $7 billion bailout (excuse me, loan) from the federal government so the state can pay its bills and employees over the next few weeks.

The state "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," Mr. Schwarzenegger wrote to Treasury Secretary Henry Paulson.

The fragile financial position that California finds itself in is mind-boggling. The state needs a credit card just to pay its monthly bills. California has a $15 billion deficit and the state's debt has nearly tripled in the past six years, from $42 billion in 2001-02 to $120 billion in 2007-08, including $15 billion borrowed to last time we faced a huge budget deficit. Despite all this red ink, voters are being asked to borrow another $16.8 billion in bonds on the November ballot.

California, home to the world's eighth largest economy, should not be buried in debt.

Unfortunately, it seems Gov. Schwarzenegger attended the Patrick Ewing School of Business. Ewing, the basketball great and one-time president of his labor union explained why NBA players needed to make more money: "They make a lot of money, but they also spend a lot of money."

That's California in a nutshell. Make a lot, spend a lot.

Sure there are excuses. The housing crisis has hit the state hard. The economy slowed and tax revenues have been less than expected. But it all comes back to spending.

Gov. Schwarzenegger promised to end "crazy deficit spending" when the recall vote ushered him into office. Yet, the governor's budgets from 2004 to 2008 increased general fund spending by a whopping 32 percent. Certainly, state Democrats who try to block nearly every budget cut share some of the blame. But ultimately, it's the governor's job to explain to taxpayers why short-term cuts are needed and why the budget process needs to be fundamentally changed to eliminate these chronic deficits.

It's time for lawmakers to go through the state budget line-by-line. After all, that's what they are paid to do. It is time to ditch baseline budgeting, where programs get increased funding just because "we have always done it this way."

Performance-based budgeting would require every state program to demonstrate what it is accomplishing and show how and why it is spending taxpayers' dollars. The most-effective programs would get more funding. The least effective programs would disappear.

Competitive sourcing, which allows the private sector to compete for jobs and contracts that are currently performed by the government, would also save a lot of money. The federal government has saved over $7 billion the last five years thanks to competition. You'll hear unions, like the prison guards, cry that this is privatization. In reality, existing federal employees won 83 percent of the job competitions from 2003 through 2007, but taxpayers saved $25,000 for every job put up for competition because even when the government keeps the job it significantly lowers costs and improves efficiency.

One thing Gov. Schwarzenegger has been right about is the desperate need for a constitutional spending limit and a rainy-day fund. Sacramento's annual spending increases should be limited to the growth in population and inflation. When the economy is booming, instead of spending the 'extra' money, California should either give it back to taxpayers or make significant contributions to a rainy-day fund. And then, in years like this, with the economy down, the rainy-day fund can be used to balance the budget without tax increases or massive spending cuts.

California's leaders constantly ask taxpayers to borrow more bond money, while they postpone tough budget decisions. Now the state might need a $7 billion bailout from the feds. Voters should send a message about fiscal discipline when asked to approve $16.8 billion in borrowing this November. And if Gov. Schwarzenegger is planning to ever live up to his promises about 'blowing up the boxes' of state government, now seems like a pretty good time to start.


Adrian Moore is Vice President, Policy


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