State Controller John Chiang

The Issue: California State Controller John Chiang (Democrat from Torrance) released a letter today that reiterated the emergency processes being implemented to attempt to meet the needs of California’s cash flow problem.  Governor Schwarzenegger continues to negotiate on a budget package that he expects to have approved before the New Year.  Any package currently being discussed probably violates the spirit and letter of California Proposition 13 and fails to seek long term solutions to California’s spending problem.

Today California State Controller John Chiang released a letter addressed to the Big 5 leadership members.  Read the letter here.

From the letter:

“…the failure of the Governor and the Legislature to quickly arrive at an agreement to responsibly address the State’s $41 billion budget crisis would begin a cascading series of regrettable actions necessary to conserve the State’s dwindling cash reserves.  However, these cash-preserving options no doubt will have the unintended effect of deepening and prolonging the recession that has already crippled our State’s economy.”

Last week Governor Schwarzenegger, reacting to the apparent inability of the Legislature to balance the budget declared that effective this February 10% of the state’s non-essential public employees would be laid off and that the remainder would be forced to take 2 days off each month without pay (referred to as a furlough).  This news was not taken well by the public employee unions, one of which has already filed a lawsuit requesting an injunction.

Even if Schwarzenegger negotiates a deal with legislative Democrats over the terms of a plan to circumvent Proposition 13 (The People’s Initiative to Limit Property Taxation of 1978), the Howard Jarvis Taxpayers Association’s President Jon Coupal has already announced that the organization will sue to prevent implementation because it violates Prop 13 stipulations in the California Constitution.

The shorter version of this story is that the budget situation isn’t going away any time soon.

Analysis: Voters need to see this predicament for what it is– the inevitable outcome of years of deficit spending.

The California Legislature, operating for the last 30 years in a Democratic majority has spent significantly increased amounts of money.  The problem was exacerbated in recent years after the development of a real estate bubble that everyone with a reasonable understanding of the market, including the Legislature, knew was going to burst.  Unfortunately, too many politicians thought their career was more important than the long term welfare of their constituents and they spent the one-time tax revenues anyway.

Now the California Republican Caucus is receiving criticism from their colleagues on the left for not being willing to “fix” the problem by raising taxes.  How quickly we forget that Republicans were the ones advocating for a reasonable rate of growth (population and inflation increases only) just two years ago.  They were trying to fix the budget then, and are still trying to fix it now.

Governor Schwarzenegger needs to stand by his Republican colleages.  Violating the 2/3 rule defined by Proposition 13 would open a can of worms that would lead to further economic troubles.  His advocacy for economic stimulus is the right course of action, but not while simultaneously violating one of the core principles of California’s budget.