Windfall-Rich State Can’t Ignore Its Obligations

As California lawmakers head toward adoption of a state budget for the fiscal year beginning July 1, they find themselves in the position of an ordinary person who has come into a cash windfall. It might be a bonus from work or perhaps a modest inheritance. The dilemma is whether to use the money the way you know you should--by paying off some nagging credit card bills, for instance--or buying something new you really want.

For lawmakers, the temptation to spend is almost irresistible because it can translate into political credit. But the legislators and Gov. Pete Wilson have an obligation to deal with some old debts before they dole out all of the state’s newfound riches. There are plenty of ideas about how to spend it. The Senate’s version of the budget, for instance, has $427 million more for welfare reform than does Wilson’s spending plan. The deadline for a final budget to be signed into law is midnight June 30.

Now, those old debts.

In the depths of the recession in the early 1990s, the state scratched to find money wherever it could to overcome massive budget deficits. With good times here, there is an obligation to return at least some of that money and restore benefits that were eliminated.

At issue are:

% Nearly $3.5 billion in property taxes taken from cities, counties and special districts (about half this amount later was offset by new sales taxes earmarked for local law enforcement).

% $1.36 billion borrowed from the state Public Employees Retirement System, which the courts now say must be repaid.

% $525 million in renter tax credits, a program to allow non-homeowners to share in the Proposition 13 property tax windfall.

Democrats also want to give state employees their first general pay raise in three years, costing the general fund $250 million.

Clearly there is not enough money on hand to pay for all these items, along with welfare reform and other necessities. But a sensible series of compromises is possible.

Wilson budgeted $100 million for a start on restoration of property taxes to local government. The Assembly set aside $280 million. The final figure should be somewhere in between.

Neither Wilson nor the Assembly budgeted money to resume the renter tax credits, so the likelihood of that happening is slim. Assembly Republicans are pushing for a general tax cut for middle- and lower-income Californians. A modest compromise that would include a break for start-up businesses would help.

State employee unions sued the Wilson administration to get the $1.36-billion retirement loan repaid. But if all the money is returned at once, there almost certainly could be no pay raise. The unions thus might agree to having the state repay the retirement fund over a period of years--if the courts agree--in exchange for a raise.

There still would be some new money for lawmakers’ projects and to provide for a prudent budget reserve for emergencies. This sort of plan would affirm that the state is willing to live up to its obligations. And it would put the state on a solid fiscal footing going into an ever-uncertain future.