Politicians, Voters Pillage Set-Aside Funds to Plug Budget Gaps
August 4, 2008
Michael Reksulak
Mirroring a $534 million shortfall in Mayor Antonio Villaraigosa’s 2008-09 proposed budget for Los Angeles, planned expenditures for California as a whole exceed expected revenues by billions of dollars. Once again, state politicians are racing to close the gap, and at freeway speeds nonetheless.
In its desperation to fill the gaping potholes in the state budget, the California Legislature—with apparent drive-by acquiescence from Gov. Arnold Schwarzenegger—is reportedly considering opening up another construction site. The new plan involves taking billions of dollars from funds that have been set aside for transportation projects and local governments, including Los Angeles, via various voter initiatives. That is exactly the kind of “robbing Peter to pay Paul” strategy that Proposition 1A, passed with 84 percent voter support and reinforced by Proposition 1B, was supposed to have blocked with a “Stop” sign.
Not surprisingly, the outcry over these proposed “solutions” to California’s perennial budget crisis is deafening. The scheme is described as unconscionable, especially given that some reports hint of lawmakers’ desires also to remove money from funds set aside for early childhood education programs. It was only a couple months ago that L.A.’s City Council approved a resolution introduced by council members José Huizar and Wendy Greuel to safeguard just such a program. As a consequence of the current negotiations, local governments throughout the state have jump-started their lobbying efforts to lodge an air bag between the funds earmarked for them and Sacramento’s big dollar-guzzling political machine.
Ignoring facts
What nobody wants to admit in this clamor of financial chaos, however, are the facts. Namely, everybody involved in this budgetary pileup is at fault due to additions to a seemingly endless list of yearly spending requests.
Likewise, attempts to cordon off parts of the budget for special projects through voter initiatives are disingenuous at best. This type of special-interest legislation succeeds because relatively small, well-organized groups—who stand to gain from the resulting payments—can convince a majority of voters to pass (or, at least, to not oppose) such initiatives. The reason is that the cost imposed on the individual voter, especially in a state as large as California, is often small.
Also overlooked is the reality that such piecemeal budgeting makes it even harder to create the political will to deal with the budget crisis head on.
This includes an honest account of all spending items and a review of the way in which they are prioritized while on the desk of the governor or mayor.
Burying big-ticket items can protect projects from well-deserved cuts or falsely increase the importance of some proposals because they escape clear-eyed comparisons.
In Los Angeles, as is the case at the state level, this situation is the result of spending that has gotten out of hand. Given that tax increases would likely choke off growth, there are only two alternatives: cut spending according to transparently stated priorities or liquidate assets. One could start with the fleet of SUVs and gas-guzzling sedans that the mayor and some council members drive at taxpayer cost.
What is truly objectionable is that the current system of obfuscation and spending sprees drains the credit of future generations. The fact that California is not alone on this misguided path cannot serve as an excuse: The Golden State should not aim to swim in red just because the federal government is on a spending binge while consumers constantly live outside their means.
In that sense, the déjà vu proposal to raid funds that were supposed to be locked away may actually start a necessary, if unwelcome, rethinking of this dead-end approach to budgeting. It is almost ludicrous to believe the implied promise that the “borrowed” money will—as outlined in Proposition 1A—be paid back. The law states that such extraordinary withdrawals are “treated as loans to the General Fund that must be repaid in full, including interest, within three years.”
That, of course, is as unlikely as a smooth ride through the budget process next year. Anybody who says otherwise may also want to sell you a big, red suspension bridge.
Michael Reksulak is a Research Fellow at the Independent Institute and an Assistant Professor of Economics at Georgia Southern University.