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Scott Wilk: Don’t be fooled, California is still broke

Posted: January 4, 2013 2:00 a.m.
Updated: January 4, 2013 2:00 a.m.

 

On Jan. 10, Gov, Jerry Brown will release his 2013-14 budget proposal.

Brown has made pronouncements that he will be pursuing a “robust” agenda that reflects his interest in creating a legacy for his administration on issues such as high-speed rail and addressing the state’s capacity to store and deliver water.

While advocating for about $100 billion in new spending for these stated projects, Gov. Brown has called for fiscal restraint from his own party by saying, “It will be an exciting year, but it has to be one where we keep one foot on the brake and the other foot modestly on the accelerator.”

It remains to be seen what the newly elected Democratic super-majority world will look like. Will they exercise restraint and use the power granted to them for the benefit all Californians? Or will they abuse their authority to pay off special interests instead of fixing our state?

In November the non-partisan Legislative Analyst’s Office released a deceptively rosy picture of our state’s budget, even going so far as to state a $9 billion budget surplus was possible by FY 2017/18.

Historically, I have found the Legislative Analyst’s Office to be non-partisan and measured. However, its projected budget scenario paints a promising fiscal picture based on too many caveats.

Here are just some of them:

The Democratic super-majority will continue to follow current law regarding spending and job growth and housing prices will continue to climb.

Washington politicians will address the “fiscal cliff.” Based upon this week’s vote for $632 billion in higher taxes and virtually no spending cuts, I think we can agree this issue has not been fixed.

California’s Unemployment Insurance Trust fund has been insolvent since 2009; however the Legislative Analyist’s Office assumes that the interest owed on the $10.2 billion obligation will decline over the life of its projection and that benefit payments will not rise. This is a completely unrealistic projection based on our state’s current economic situation.

The Legislature will not put funds into the state’s Budget Stabilization Account, or rainy-day fund, as required by voter-approved Proposition 58.

Proposition 98 funding for K-14 will not increase.

The state will pay down the debt as scheduled despite Gov. Brown’s stated preference of paying it down faster.

If any of these assumptions fail, they could have a drastic impact on the availability of any projected budget surplus.

Another assumption the Analyst’s Office made is that tax revenue taken as a result of Proposition 30 will continue to come in as projected. How many of these job-creators will flee to Nevada or Texas, taking good-paying jobs with them?

After Proposition 30 passed, a constituent of mine wrote me describing the specific steps he’s taken to move his manufacturing business (40 local jobs) out of California. How many business owners are contemplating the exact same thing?

If Proposition 30 does create an exodus of these higher-income taxpayers from California, what will happen if the Democratic super-majority spends its way back into another budget deficit?

Will the super-majority pass another major tax hike to compensate for its overspending?

This year’s budget was assumed to have a reserve of $948 million. However, the budget is now projected to suffer from a $943 million deficit because of the combination of both lower revenues (Facebook IPO debacle) and higher expenditures. We cannot afford to proceed in this manner.

The super-majority must exercise fiscal discipline to fix the structural deficit that exists in the state budget.

State Controller John Chiang, a Democrat, issued this chilling warning when revenues fell 10.8 percent below their expected return in November: “This serves as a sobering reminder that, while the economy is expanding, it is doing so at a slow and uneven pace that will require the state to exercise care and discipline in how its fiscal affairs are managed in the coming year.”

I call on my fellow legislators to heed Controller Chiang’s warning. The hard-working families of California realistically plan for their future and spend within their means. Sacramento needs to do the same.

Scott Wilk represents the 38th Assembly District, which encompasses Simi Valley, the northwestern section of the San Fernando Valley and most of the Santa Clarita Valley.

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