Friday, January 10, 2014

Jerry Brown's Tax-and-Spend Games

By Allysia Finley

Jerry Brown has a reputation for governing in contradictions. For example, he preaches fiscal prudence—and then insists that the state charge full-steam ahead with its quarter-baked $70 billion bullet train. Another example would be his budget plan for the upcoming year.

The $106 billion general-fund budget increases spending by $8 billion thanks largely to a windfall in capital gains revenues. The governor, however, notes that capital gains "tend to be extremely volatile." His budget purportedly seeks to avoid the "unproductive boom‑and‑bust cycle" by using one-time revenues to "make the state's first deposit into its Rainy Day Fund since 2007."

In 2004, voters approved a ballot measure that required the legislature to make annual payments into a rainy day fund. However, as Mr. Brown notes in his budget, "the state has suspended the rainy day transfer every year since 2007." We're guessing many voters for this reason probably don't realize a rainy day fund exists.

The governor wants to strengthen the rainy day fund by requiring the legislature to make deposits when capital gains revenues rise to more than 6.5% of the general fund (this year, capital gains revenues made up 10%) and to use the reserves to stabilize education funding during downturns.

But taxpayers shouldn't be fooled. Democrats in the legislature could still suspend required deposits. What's more, this plan merely locks in higher taxes and spending, which will be shifted forward. The teachers' union will be the biggest beneficiary since more money will flow to education in downturns. Schools will continue to collect on windfalls due to a state constitutional amendment that guarantees a minimum level of education funding. For instance, schools are slated to receive nearly $10 billion in additional funding this year under the governor's budget in part due to the 2012 voter-approved tax hike, which is throwing off more revenue than the state projected.

Read the rest here.

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