California’s gubernatorial transitions have included a less-than-stellar tradition in recent decades – outgoing governors leaving budget deficits to successors.
The current governor, Jerry Brown, started the syndrome in 1983 when he departed after his first gubernatorial stint and left a $1.5 billion budget hole – big money in those days – for Republican George Deukmejian.
The state had shouldered burdens for schools and local governments after the passage of Proposition 13 in 1978, but simultaneously, Brown and legislators cut income taxes to comport with voters’ anti-tax mood, creating operational deficits that had exhausted reserves by 1983.
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Eventually, after weeks of wrangling, the budget’s hole was filled with short-range borrowing, spending cuts and some revenue increases that Deukmejian insisted were not taxes, but were.
The tradition continued when Deukmejian willed a deficit to Republican Pete Wilson, leading to more spending cuts and taxes. But eight years later, Wilson became the only recent governor to leave a balanced budget to his successor, Democrat Gray Davis.
Davis was recalled by voters in 2003, in part because of his mishandling of state finances, digging a fiscal hole that a tax cut by his successor, Republican Arnold Schwarzenegger, plus a deep recession, made even deeper. Thus, when Brown returned to the Capitol in 2011, he faced a huge deficit and vowed to fix the state’s chronic budget problems.
Now that Brown 2.0 is drawing to a close, one might wonder whether he has broken the cycle. The answer is yes – and no.
He likely will not leave a big deficit for the next governor. He’s been relatively tight on spending, the economy is positive, and he persuaded voters to pass a temporary increase in income taxes on the wealthiest Californians, plus a small sales tax on everyone, and later a “rainy day fund” to cover future shortfalls.
As the Legislature’s budget analyst opined last week, reserves would see the state through a couple of years of mild recession, should it occur, and that means Brown is probably home free.
However, the post-Brown situation is much cloudier, even though voters have extended those extra taxes on the wealthy by 12 years.
They are now providing about a third of the state’s general revenues from taxes on their investment earnings, making the budget even more dependent on a very narrow and very volatile base.
Moreover, the state could face many billions of extra expenses if Donald Trump and Congress slash support for Obamacare. And state revenues have been falling below expectations this year.
“So with what we know now, the outlook for the upcoming budget is concerning and will need to account for this declining revenue and the significant uncertainties that the analyst has identified today – including stock market performance, the potential for recession, and changes in federal policy,” Brown budget director Michael Cohen said.
So Brown’s fix is temporary, rather than permanent. And with so many variables, the next governor could easily be back in the soup.