Gov. Jerry Brown exudes pride that voters approved Proposition 2, which creates California’s first meaningful budget reserve, hailing it as a bulwark against periodic flirtations with fiscal insolvency.
However, even though legislators voted overwhelmingly to place it on the ballot, the rainy-day fund is causing friction in the Capitol just a few weeks after its passage.
Brown wants it filled as soon as possible – and partially devoted to retiring debt – while his fellow Democrats are pleading to loosen up on spending for health and welfare programs serving the poor.
Assemblywoman Shirley Weber, who chairs the Assembly’s budget committee, coined a phrase for the plea last week, calling it “an unfunded poverty liability.”
Brown will likely prevail because he holds the whip hand on the budget. He’s in his last term as governor, doesn’t want to leave the budget unbalanced as he departs in 2019, and has line-item veto power to reduce spending.
All of that notwithstanding, Proposition 2 is not the best solution to revenue volatility, which is caused by a too-high reliance on personal income taxes from a relative handful of wealthy Californians whose incomes from stocks and other capital assets go up and down like yo-yos.
The reserve may cushion the impact of a mild recession but would quickly be consumed by a major one.
Moreover, while Brown seems determined to honor its provisions, a successor might succumb to pressure from pro-spending interests and be less stalwart.
The more direct, effective approach would be to alter the state’s tax system to make it less volatile, but that, necessarily, would shift the relative burden from the one-percenters to the middle class.
Newly elected Sen. Bob Hertzberg wants to do that by, among other things, expanding the sales tax, a much stabler revenue source, to services. He calls it the Upward Mobility Act and would direct new revenue, about $10 billion a year, into K-12 and higher education, local governments, an earned-income tax credit for the poor, and “minimum wage relief.”
Hertzberg, a former Assembly speaker who chairs the Senate’s tax committee, says it’s just a proposal to stir discussion. “Now I have everyone’s attention,” he says.
He does, including Brown’s. The governor is skeptical, saying, “people ought to listen to him and see where they go, but I can tell you this: Taxing new people is always difficult. So if you tell them that their Pilates class takes an 8.5 percent sales tax, they may not be as yoga-happy as they were before.”
There’s no more important Capitol issue than moving away from its boom-and-bust mentality and creating long-term fiscal stability.
Proposition 2 is at best a stop-gap approach. Were Brown serious about what happens after he’s gone, he would make tax reform his highest priority.
Call The Bee’s Dan Walters, (916) 321-1195. Back columns, sacbee.com/dan-walters. Follow him on Twitter @WaltersBee.