In Search of the Enron Accountants

June 10, 2003

By Tom McClintock

Gov. Gray Davis' May budget revision at least answers one question: what ever happened to Enron's accountants? By every indication, they're alive and well and hard at work on California's budget crisis. How else can Gov. Davis claim that he is cutting more from the state budget than any Governor since 1945 while adding $2.2 billion in new spending to his January budget proposal?

It's easy, with the right accountants. Davis counts the tripling of the car tax - bringing $4.2 billion into state coffers at the expense of every family in California -- as a "cut" in government spending. Borrowing $1.8 billion to meet the state's pension obligation is another "cut" in government spending. So is ignoring $500 million the state owes to the State Teacher's Retirement System. Pushing $1.1 billion of state school obligations and another $900 million of MediCal costs into the next fiscal year is a "cut" in government spending.

All told, at least $8.5 billion in so-called "cuts" are either tax increases or robbing from future budget years. An additional $5.5 billion in "cuts" are the result of the Governor adding new spending into the budget that is not required by current law and then taking it out again. When the Governor finishes "cutting" government spending, he still has to borrow $10.7 billion to cover his deficit for the fiscal year ending June 30th - at an added interest cost of $1.1 billion. According to the Legislative Analyst's office, total borrowing in one form or another accounts for $17 billion of the Governor's budget "solution." In 1966, Ronald Reagan mercilessly pounded Governor Pat Brown for spending $1 million a day more than the state's revenues - about $5.5 million in today's dollars. Davis, by contrast, is spending $30 million a day more than the state is taking in.

To finance the borrowing, he proposes to raise California's sales tax, which is already one of the highest in the nation. This, he says, is his concession to Assembly Republicans, who had proposed borrowing into future years to pay off the "Davis Debt." The only saving grace of the Republican proposal was that it allowed for a politically acceptable solution without tax increases. Davis' response was to accept the very worst part of the Assembly Republican plan and finance it WITH tax increases. And he still starts the next fiscal year nearly $8 billion deeper in debt despite more than $8 billion in new taxes. The saddest thing about the May budget revision is that it studiously ignores the operational reforms that could quickly bring the state's finances back under control without decimating state services and without crushing the economy - simply by changing the way money is spent in Sacramento.

For example, the Performance Institute and the Reason Foundation - two think-tanks specializing in public administration - released a detailed study of California's bureaucracies just days before the May budget revision. Their conclusion: if California adopted such commonsense reforms as performance based budgeting, contracting out state services, selling surplus state assets, combining or eliminating agencies with overlapping jurisdictions, pension reform, the budget could be easily balanced without sacrificing vital services or raising taxes. But that would require crossing California's well-entrenched spending lobby and that's something the Governor and legislative Democrats just won't do. To prove the point, Democratic majorities in both houses added nearly $2 billion more to the governor's budget proposal before sending the mess on to a conference committee. The price is steep: the biggest tax increase in California history; a pension system that is out of control; steadily mounting debt.

And a future as bright as Enron's.

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Senator McClintock represents the 19th State Senate district in the California Legislature. His website is www.senate.ca.gov/mcclintock.