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Fiscal Follies




Editor’s Notebook , Tom York

Wondering what’s ahead in 2008? Well, let me just paraphrase a line from Hollywood actress Bette Davis: “Hold on, folks, it’s going to be a bumpy ride.”

Or, maybe I should say, “Hold on to your pocketbook.”

It could well be the year of the tax increase.

The year 2008 will most likely end up being a costly one for business large and small, from Crescent City to Chula Vista. Thanks in part to the unfinished business of 2007, 2006, 2005, 2004 and 2003, when we had our famous recall election.

These days in Sacramento, the state Legislature faces yet another humongo deficit estimated at $15 billion-plus.

The full impact of the subprime mortgage loan and related housing crash is now working its way through the economy, so the final tally on the shortfall may not be known till the first days of summer.

As we know, recent state budgets have been cobbled together with lots of borrowing and revenue shifting, not to mention just general shiftiness.

A political columnist for the Los Angeles Times noted that even if Sacramento shuttered prisons, unfunded the UC and state university systems and drastically whacked welfare benefits for the poor and elderly, the projected deficit still wouldn’t be erased.

More than 40 percent of state spending, much of it devoted to K-12 schools, can’t be touched under provisions of several propositions, unless the government steps in to declare an emergency. By the way, Gov. Arnold Schwarzenegger plans to declare such early in January.

Do we dare ask if the crisis in our future has been made worse by the unsolved crises of the past?


What, Me Worry?

Meanwhile, not to worry. Our top officials are deep in big discussions about how to head off a financial crisis in the new year.

For example, one idea gaining momentum is extending the sales tax on services (as well as goods), which would allow bureaucrats to continue spending more money on less.

It would be a godsend worth tens of billions of dollars for those who toil under the Capitol’s cavernous rotunda.

Clearly, Sacramento is out of touch with reality.

In early December, the Assembly adopted a $14.5 billion universal health care plan paid for mostly by levies on businesses and hospitals, as well as increases in cigarette taxes.

The vote begs an important question: Why is the state mucking around with a legally questionable health care plan when the state is unable to pay its bills from year to year without shenanigans?

Health care coverage is not the only worrisome issue in Sacramento.

There are many, some of them whoppers, too.

A recent nonpartisan report found that the state has a financial obligation to retired state workers in the amount of $48 billion for health care coverage, but officials have not set aside one thin dime to cover those costs in the years ahead.

Guess who’s going to be paying for this at some point in the future?

The state workers’ comp fund is in such a fiasco that it will take years to straighten it out, according to activist state Insurance Commissioner Steve Poisner. Guess who’s going to pay for said fiasco?


Basic Question

The Legislature has long avoided the basic question about how state government , and to a large extent regional and local government , is paid for.

A fundamental restructuring in how we raise and spend money is needed, but no one will touch the issue because it’s just too darn political.

The state rarely sets aside money for a rainy day, and invariably spends more money than it takes in revenues, primarily personal income and sales taxes.

Both are subjected to the ever-changing rise and fall of the economy, and as we learned in the early 1990s, the economy can plummet precipitously in the span of a few months.

The fact that lawmakers are willing to extend the sales tax to include services gives us a hint that once again they plan to avoid a fundamental restructuring of the system in favor of a quick fix that will have unintended consequences for decades ahead.

A tax on services will cost business a lot more , the proverbial marketplace, i.e., the world of business is essentially an exchange of services as well as goods. Business will suffer more than consumers if this tax is extended.

During a similar crisis in the 1990s, Sacramento diverted property tax dollars from local governments to cover ballooning budgets.

Lawmakers promised to restore those dollars to local governments, but never did.

That little raid forced local governments to organize raiding parties of their own. It was about the same time that fees went up on everything from building permits to marriage licenses to parking tickets.

So, anyway, here’s how our duly elected representatives think.

Need a buck? Tap a businessman or businesswoman. They’re a soft touch.

Bumpy ride ahead? You can bet your sweet bippie!


Tom York is editor of the Business Journal.

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