Thursday, April 27, 2006

Dude, Where’s the 1.5 Billion?
Joe El Rady

California’s April income tax collections have already exceeded expectations by $1.5 billion. (Looks like our favorite Austrian is breathing a sigh of relief—he’s thinking maybe he won’t get his sausage cooked in the next election after all.)

As you know, in Sacramento, opinions are like assholes—everybody has one. So enjoy the good news while it lasts, because next month the wrangling over how to spend this money will begin. In fact, Assembly Republican leader George Plescia of San Diego already chimed in with: “It's a lot easier dealing with budget issues when you’re talking about where to spend, not where to cut.” Without commenting on the searing profundity of this statement, I would like to highlight diction: “spend.”

Before we grab our sunglasses and tote bags and embark on a shopping spree, let’s examine some intelligent uses for our tidy fiscal windfall. First, most obviously, and most intelligently (which is why you probably will not hear it mentioned much in Sacramento) we could use this money to pay down some of our state’s debts. In fact, this should be our first priority.

Actually, to their credit, a good number of Republican lawmakers are calling on Schwarzenegger to use some of the additional revenue to pay debt—specifically, the ongoing $5 billion gap between spending obligations and revenue.

Should the pols commit the grave error of not using this money to repay debt, then they should at least invest in our state’s future planning. Some ideas:
1. Contribute it to an interest bearing emergency and disaster fund. (San Francisco faces a 60% chance of 7.0 or stronger earthquake within the next thirty years. Such an earthquake would likely destroy the city, which would cost $300 Billion to rebuild.)
2. Build a better, more secure auxiliary water supply in San Francisco. The lack of an auxiliary water system allowed the fires sparked from the great earthquake to destroy the city in 1906. By contrast, a fireboat saved the Marina from destruction by fire during the Loma Prieta earthquake in 1989. Currently, the city has 2 fireboats, several more, with the addition of an auxiliary water supply would help save SF during the next earthquake.
3. Increase the size of the state police. Our cashed strapped federal government does not have the resources to protect our critical infrastructure from terrorist attack. Furthermore, Los Angeles has a police shortage. The mobility of state police officers due to their jurisdiction over the whole state can help to solve many of these problems.
4. Accelerate the earthquake retrofit of our state’s critical infrastructure, including bridges and freeways. CalTrans is doing a marvelous job at this, but more resources could get it done faster.
5. Create a reserve budget to pay lawsuits. Several large lawsuits, including the one against the prison system and its provision of healthcare, threaten the state.

Finally, a note on the unexpected revenue. Without an increase in tax rates, increases in tax revenue occur because of economic expansion. People make more money, and thus, have more taxable income. This comprises the perfect opportunity to raise taxes. Clearly, no politician wants to raise taxes in an election year; however, our state’s fiscal crisis demands that we seek not only more debt financing and re-financing with creative use of municipal bonds and their term structures but also higher revenue. In a period of economic expansion, higher taxes actually soften the economy’s inevitable recession landing by managing inflation and regulating interest rates.