Here is a note responding to my column from Schwarzenegger’s deputy chief of staff, Matt David:
One of the key facts that you failed to mention is that year over year spending under Governor Schwarzenegger has been held to lower than any governor in modern history (3.9%) and this includes debt repayment incurred by spending of Governor Davis. This rate of general fund spending is lower than Governor Reagan (13.6), Governor Duke (8), and Governor Wilson (4.6). The tax increases, all temporary and the first since he took office, amount to a percentage of the general fund smaller than the tax increases signed by either Governor Wilson or Reagan.
What your column seemed to miss is that two of the biggest problems in California’s budget system are being addressed by this Governor.
First, there has been no strong spending limit or rainy day fund in place. When revenue spiked by 21% under Governor Davis, all of the revenues were spent. Governor Schwarzenegger and Republicans in the Legislature successfully negotiated strong budget reform that creates a real rainy day fund as a part of this budget. That will go to the votes in a special election this May.
Second, California suffers from an extremely volatile revenue system. Right now, the wealthiest 1% of Californians pay 50% of the personal income tax and our revenues are very dependent on capital gains taxes. This creates major volatility- for example, California’s GDP this year dropped by 1%, but revenues dropped by 15%. That’s why Governor Schwarzenegger established a commission, chaired by Gerry Parsky, airing, to reevaluate and modernize California’s revenue system. The Governor said its recommendations must be revenue neutral and the committee is reporting back this spring.
Something that shouldn’t be lost to your readers is that California faces this budget crisis as we are in the middle of a global economic crisis that has caused 46 states to deal with a deficit as their revenues have dropped.
One final point, your column has a glaring inaccuracy. Governor Schwarzenegger has never said that the federal government should bailout states and said that California needs to get its own fiscal house in order. Here’s his direct quote: “But the key thing here is not to let anyone fool themselves by thinking that the federal government should bail out California or, as far as that goes, that the federal government should bail out any state, because I think that the most important thing is for states to correct their problems and the mistakes that were made. As you know, half of the problem that we have without budget is because of the nationwide and the worldwide recession and the economic crisis, the financial crisis that we have. But the other half is self-inflicted wounds. It’s because we haven’t had a rainy day fund. It’s because we did spend more money than we have taken in, consistently. So I think that we have to correct those problems and really live within our means and when we have taken care of that, then we can go to the federal government and say okay, we would like to work together with you on health care and those other issues.” (Gov. Arnold Schwarzenegger, Press Conference, 1/26/09)