OPINION Just five months after boasting that California’s "budget deficit is zero," Gov. Arnold Schwarzenegger recently came back to tell us the state is facing a staggering $14.5 billion shortfall over the next 18 months.
To deal with this amazing turn of events he is now proposing that we slash funding for our court system; virtually close down our state parks system; cut more than $4.5 billion from K–12 education; decimate our AIDS Drug Assistance Program; further reduce reimbursement rates for health care providers; put the children of mothers on state assistance at risk of homelessness; deny the blind, the elderly, and the disabled even a minimal cost-of-living adjustment; and continue to underfund our higher education systems.
Voters should rightfully be bewildered and seriously concerned. How and when did this crisis happen? How could the state go from a budget deficit of zero to one of $14.5 billion in just five months?
The governor’s earlier boast about our nonexistent budget deficit was a great line from a great showman. But it failed to tell the real story.
The fact remains that Schwarzenegger created the beginnings of this budget catastrophe on his very first day in office, when he followed through on a campaign pledge he made during the 2003 recall election. His promise was to rescind the restoration of the vehicle license fee.
The VLF was created in 1935 as a 1.5 percent tax on the purchase price of every automobile sold in California. Iconic Republican governor Earl Warren raised it to 2 percent in 1948. VLF revenue does not go to the state’s General Fund. Rather, it goes to local governments to pay for fire and police protection, keep libraries and parks open, and keep our streets clean.
In 1998, at the height of the dot-com boom, when California had surplus tax revenue, the Stage Legislature offered car owners a temporary relaxation on the VLF. The average 2 percent VLF was then $300. The "good times" tax break lowered the amount car owners paid to just $100. The state picked up the remaining $200 so local governments would continue to receive the entire $300. At the time this cost the GF around $5 billion annually. The deal was to continue as long as there were "sufficient general funds" to make up the difference.
In 2003, after the boom went bust, we faced a $38 billion state budget deficit. Then-governor Gray Davis’s finance director correctly determined that there were no longer sufficient general funds to continue the good times tax break. The VLF was restored to where it had been for 50 years.
Candidate Schwarzenegger seized on the issue, and the rest is history. Unfortunately, the $6.15 billion that Schwarzenegger is now spending annually on the VLF tax break is money we don’t have. Neither are the billions he’s spending to cover that debt, which stands at more than $20 billion over the past four years. Combined, the cost of the VLF tax break and the debt to service it account for almost 90 percent of our current budget deficit.
Without the governor’s reckless and profligate spending habit, our state would have no budget crisis and there would be no need to dismantle essential governmental services.
We need to finally have an honest conversation with the voters of California. One can debate whether or not the VLF spending program is a good idea. What is not debatable is that the ongoing GF cost of the VLF spending program is the main cause of our budget woes.
An immediate intervention is necessary. We must break the governor’s spending addiction to correct the course of our state.
Mark Leno
Mark Leno represents Assembly District 13 in Sacramento.