Study: California's Governor Must Terminate Tax-and-Spend Policies to Restore State's Prosperity

9/8/2003

From: Pete Sepp, Maureen Tell, John Berthoud, 703-683-5700, all for National Taxpayers Union Foundation

ALEXANDRIA, Va., Sept. 8 -- Whoever occupies the governor's mansion in Sacramento after next month's gubernatorial recall election will need a new level of commitment to spending restraint, tax reduction, and regulatory sanity, according to a new study released today by the non-partisan National Taxpayers Union Foundation (NTUF). Even as pundits dismiss the recall process as a "circus," NTUF's research uncovered some of the fiscal acrobatics that have fueled public anger in the first place.

"With a $100 billion budget and a shortfall as high as $38 billion, things have not looked bright for Gray Davis," said NTUF Adjunct Scholar and study author Dariel Colella. "Despite this bleak picture, and regardless of the electoral outcome on Oct. 7, there is hope for California as long as the governor and the legislature learn that tax increases are not a panacea for their yearly budget crisis."

Although Colella acknowledged that there is "no quick fix" for California's flawed fiscal structure, she contends that solid research on the past experience of California and other states provides useful boundaries within which current problems can be resolved. Among her recommendations:

-- Take Tax Hikes Off the Table. In 1990, then-Gov. Pete Wilson signed into law a $7 billion tax increase that only worsened the states recession (350,000 jobs were destroyed in the three years that followed). Although those increases were largely repealed and employment rebounded for a time, other tax increases have since taken their place (and taken a toll). According to the 2000 Census, during the 1990s more people fled California's hostile tax and business environment than moved into the state.

-- Tackle Spending Growth. Since 1995, California's state budget has risen 58 percent, yet lawmakers addressed this year's deficit mostly through fee increases, transfers, and loans. The red ink that remains can't be erased next year through gimmicks. Real spending restraint, involving proven techniques like department consolidations, full-time equivalent employment caps, and consumer choice-based Medicaid structures, will be necessary to avoid crippling tax hikes in the future.

-- Set Limits for Government. Propositions 13 and 218 have been helpful in limiting some kinds of taxes, but the state's Constitutional spending lid known as the "Gann Amendment" has been weakened. California needs a comprehensive limit like Colorado's spectacularly-successful Amendment 1, which limits state and local government growth to the rate of inflation and population, and requires refunds of surplus revenues unless voters say otherwise.

"Either Gray Davis or the person who inherits the governorship from him must create incentives for new businesses to reside and flourish in the state," Colella concluded. "That is not going to happen with additional tax hikes and increased user fees. It will happen when the state's elected leaders realize the need for change. California has been known to turn dreams into reality, and voters are depending on their next governor to do just that."

NTUF is the research and educational arm of the 350,000-member National Taxpayers Union, a non-partisan citizen group founded in 1969. Note: NTUF Issue Brief 145, Is California Dreaming, or Will the Next Governor Bring Change to the Failing State?, is available online at http://www.ntu.org.