Where is the money going to come from?

By Francis Somsel

November 6, 2006

Tomorrow Californians will vote on five new general obligation bonds, which are loans to be paid over the next 30 years directly from state tax revenues. These bond issues - Props. 1b, 1c, 1d, 1e, and 84- if passed would add over $42 billion in new debt to the state and would increase the state budget by nearly $2.5 billion per year.

One could argue the merits of the spending priorities in each of these propositions, but I'm going to go out on a limb and assume that not only does the state need to spend money on these areas, but that these propositions represent the best possible way to spend the money to accomplish these goals. Debating whether or not we should be spending more money on highway safety, traffic reduction, air quality, housing, school facilities, disaster preparedness, flood prevention and water quality, will not answer the following question: where is the money going to come from?

In the current state budget they are spending over $101 billion out of the general fund; that is over $2700 for every man, woman and child in the state. Yet, the state's general fund only anticipates about $94 billion in revenues this year, approximately:

· $51 billion from income taxes,

· $28 billion from sales taxes,

· $10.5 billion from corporate taxes and,

· $4.4 billion from other sources (insurance, liquor, and tobacco taxes, motor vehicle fees, and "other").

That leaves a $7 billion shortfall this year which is being covered by a loan from the previous budget. The loan will not be available next year.

Not only do we have to make up for this budget shortfall, but, if these bond issues pass, they will add another $2.5 billion to next year's budget, and every budget for the next 30 years.

If we are to assume that:

· Tax revenues stay the same next year (they are at an all time high and are already showing signs of decline)

· the state budget is frozen at current levels (it went up over $10 billion from 2005 to 2006), and

· That there are no other hidden budget busters (like the $6 billion in PUC bonds, the $170 billion in unfunded pension and health care liabilities, the $1.5 to $2 billion in anticipated expenses when the federal courts take over the prisons, etc.),

we would be looking at a state budget deficit of $9.5 billion next year.

Where are we going to get the extra $9.5 billion?

Are we going to raise income taxes by 20%?

Are we going to raise sales taxes by 35%?

Are we going to double corporate taxes?

Is there some other mysterious source of funds to account for the projected $9.5 billion shortfall next year, should all of these bond issues pass?

I don't have the answer. I haven't heard one provided by any of the candidates. I haven't heard any of the proponents of these propositions say where the money is going to come from. All I know is that if you find yourself in a deep hole, stop digging.

Assuming the best-case scenario, that every penny of spending in Propositions 1b, 1c, 1d, 1e and 84 are vitally needed, that these Propositions represent the best possible way to allocate these funds, that the rest of the budget remains frozen at $101 billion, that state tax revenues remain at their record high levels of $94 billion, and that if these Propositions actually pass, and that they will only cost the state the estimated $2.5 billion in yearly bond payments, there is only one conclusion to make:

Vote NO on 1b, 1c, 1d, 1e and 84. We simply can’t afford it.

"A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship."

Alexander Tyler, 1787

Francis Somsel has a degree in History from U.C. Berkeley, and is active in San Francisco politics. In 2004, he ran for Supervisor in District 5 as a moderate Democrat. He worked as a financial advisor for many years, and is currently self-employed. He has lived in the Bay Area for nearly 30 years and currently lives in North Beach with his wife, a writer, and all her shoes. Email Francis at fsomsel@yahoo.com.

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