By Noel T. Braymer
The short answer is money: or rather the lack of money. Things looked much brighter back in 2000. In 2000 the State of California had a budget surplus of 12.3 billion dollars! The Federal Government also had a budget surplus and the Federal Debt was shrinking. Unemployment was low and economic growth was high.
So what happened? This was also at the time of the end of the Dot Com stock bubble. California gets quite a bit of tax revenue with capital gain taxes from stock sales when the stock market is hot. But like all things that go up, the stock market does go down so revenue from capital gain taxes are very volatile and can dry up very quickly. This was known in 2000.
Despite calls to create a reserve fund from part of the surplus, this wasn’t done and taxes were reduced to draw down the surplus which was required by law.
Shortly after this high point in 2000 California and the Nation were hit with several financial shocks. From the middle of 2000 through the fall of 2001 California had a constant electrical energy crisis. It was later confirmed that this “crisis” was created by the new electricity commodity market (which was suppose to save ratepayers money) run by Enron from its traders and power suppliers who created phony energy shortages to drive up the cost of electricity and their profits. It is estimated that this cost California 40 to 45 billion dollars.
Nationally after 2001 in the face major military operations in Afghanistan and Iraq, the Federal Government in an unprecedented move reduced taxes at a time of rapidly growing government spending. By 2001 the National economy was in a recession and soon the Federal Government had a major budget deficit. Despite stimulus checks and record low income taxes the economy remained sluggish with little job growth for the first 6 years of the 21st Century. Then in 2007 it went into one of the largest economic downturns in American History.
After 2007 at every level of government there were major budget shortfalls. At all levels of government there were efforts to balance budgets through major budget cuts in the face of rapidly falling tax revenues caused by the slowing economy.
Back in 2000 then Governor Gray Davis had a multiyear Traffic Congestion Relief Plan (TCRP). This proposed 5.3 billion dollars for Transportation over several years which included 3 billion dollars for rail and transit projects. Of this 3 billion there was 700 million dollars of spending for intercity and regional rail projects. This would be money that didn’t have to be borrowed for with government bonds, it was pay as you go.
In 2000 there were plans by 2005 to reduce the running times of the Surfliners between Los Angeles and San Diego by 34 minutes. There were proposals to have run-through track at Los Angeles Union Station built. By 2010 there were expectations that the Surfliners would run at speeds up to 110 miles per hour with travel times between Los Angeles and San Diego under 2 hours with 14 round trip trains a day for almost hourly service all day long.
For the San Joaquin Trains travel time was expected to be reduced from 6 hours 9 minutes to 4 hours and 55 minutes between Bakersfield and Oakland no later than 2010. From Sacramento to Bakersfield travel times would be reduced to just under 4 hours by 2010. By 2005 running time reduction from Bakersfield to Sacramento by 36 minutes and to Oakland of 45 minutes would have been possible. It was expected that by 2010 there would be 6 round trips between Bakersfield and Oakland and 4 round trips to Sacramento. Today there are still 4 trains to Oakland and 2 to Sacramento from Bakersfield.
In addition to this there were plans in 2000 before 2010 to have a daily round trip from Los Angeles to San Francisco as well as local trains from Los Angeles to the Palms Springs area. There were also plans to rebuild the Dumbarton rail bridge and expand Caltrain service to the East Bay and ACE service to San Francisco.
Instead by 2002 the California budget surpluses which had happened for most of the later 90’s turned into a 7.6 billion dollar deficit. At this time all attempts to return the taxes lowered to reduce the tax surplus to their old rates were opposed as “tax increases” and not passed by the two/thirds majority needed in the Legislature. After the recall of Governor Davis in 2003, his successor Arnold Schwarzenegger had made a campaign promise not to raise taxes and to balance the State’s budget which he was required by State law to do.
Governor Schwarzenegger kept his first promise but was unable to make good on his second promise. To keep the California Government going his administration borrowed money with voter approved bonds. The hope was that this would keep the State Government running until the economy picked up and increased tax revenues would balance the budget. This never happened and by 2007 the State and the rest of the Country was in a major economic recession which caused tax revenues to drop even more.
The welcomed news of the current State budget surplus is the result of several factors. In 2012 the voters approved some modest tax increases. Also the voters approved a measure to allow more non-violent prisoners to be released to reduce the prison population and save the State money. Since 2009 the national economy has improved which has helped the State’s tax revenues. At the same time the stock market is now at a new all time high and with that the States Capital Gains tax revenue is also up.
The challenge for California is to continue to budget and collect taxes in a rational and reliable way. It is impossible to plan any part of government when income fluctuate widely. Stability is the goal of any successful government. Government is most needed in an emergency to provide services and public safety during and after a crisis. Government can’t do this if it is in a constant state of fiscal crisis.
Some of the rail projects proposed back in 2000 have since been built. But many others are still waiting for funding. By nature expenses are constant and usually rise while income goes though up and down cycles. California need to broaden its tax base to avoid the boom and bust fiscal cycles caused by the stock market and maintain a reserve fund to cover future budget shortfalls.
In the not so distance past California’s State budgets were handled in a more responsible and prudent manner to deal with budget problems. This was done by cutting or putting off spending and raising taxes to balance the State’s budget. This was done by California Governors for years including Governors Reagan and Wilson not that many years ago. Perhaps it would be better just to give taxpayers a refund check than cut tax rates during a budget surplus since these rarely last long. By having a stable and responsible budget we can go back to building a state we can be proud of, where it will be easier to travel and attract more jobs and businesses.