When you get past the political fuzz and buzz, the Capitol’s quest for a new rainy-day fund to store excess state revenue is an admission that politicians have failed in the past and can’t be trusted in the future.
Gov. Jerry Brown, in calling a special legislative session to place a rainy-day fund measure on the November ballot, indirectly alluded to fiscal sins of the past.
“We simply must prevent the massive deficits of the last decade, and we can only do that by paying down our debts and creating a solid rainy-day fund,” Brown said.
Those “massive deficits” resulted from politicians squandering occasional windfalls on new spending and tax cuts, only to face shortfalls when revenue returned to normal.
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The windfalls came from an unbalanced system that depends on personal income taxes for two-thirds of general fund revenue, especially high-income taxpayers and their capital investments.
Were the state’s politicians not irresponsible, they could manage the revenue swings by voluntarily building reserves during up-cycles to cushion down-cycles.
But since they are untrustworthy, it leaves just two ways to avoid fiscal meltdowns – reform the tax system or be compelled to set aside windfall money.
The former would be preferable, not only to reduce volatility, but because the entire system is out of touch with 21st century economic reality. A stable, economically viable tax system has wide bases and low rates, but ours has very narrow bases and among the nation’s highest rates.
A state commission recommended a tax system overhaul a few years ago, but its report was quickly buried because it would have shifted some burden from high-income taxpayers to the middle class.
That leaves the rainy-day reserve that Brown wants, seeing it as his only hope of taming the budget monster. But Brown also knows that while revenue is on the upswing now, history indicates that a downturn is likely before his second governorship ends, and without a big reserve, he could end his career with another big deficit.
Brown’s fellow Democrats and their allies in unions and “safety net” advocacy groups really don’t want a tough rainy-day reserve that would curb spending – as indicated by Senate President Pro Tem Darrell Steinberg’s lukewarm, caveat-filled response. He wants to leave office this year with a billion-dollar-a-year expansion of early childhood education on his record.
Republicans, some of whose votes are needed to write a new rainy-day fund measure, would prefer a tougher one that was placed on the ballot five years ago as part of a budget deal but has been postponed by Democrats twice.
And the special session? It doesn’t make it any easier to pass a new measure, which requires a two-thirds legislative vote, but could make it easier to scratch the pending measure if no deal is made.