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January 9, 2014
Editorial: Brown is right to use windfall to pay down debt

budget.JPG(Jan. 9 - By the Editorial Board)

Heading into what likely will be his final campaign, Gov. Jerry Brown sounded many of the right notes in the fourth budget of his third term as governor, promising to boost school spending by $10 billion and using $11 billion to pay down debt.

A year after voters approved a $6 billion tax increase, Brown made clear Thursday that he has no desire to seek yet more new taxes: "I don't think this is the year for new taxes."

The governor faces a fundamental question: Will he be able to hold the line on desires for more spending, when most of the Legislature faces election and will be looking to create a legacy?

Brown's $154.9 billion budget proposal leaves some room to reverse painful cuts to safety-net programs; that's important. But he also is earmarking $11 billion to paying down what he calls the "wall of debt."

Part of that money would be used to pay off the $15 billion in so-called economic recovery bonds used by his predecessor, Gov. Arnold Schwarzenegger, to paper over prior budget deficits. That ought to be a cautionary note for legislators.

Not too many years before Schwarzenegger went into debt, the state was riding high on the strength of fat income-tax collections.

California relies heavily on taxes collected from the highest earners. They rely on capital gains for much of their income. Capital gains are a notoriously volatile income source.

The governor's 180-page budget summary cites demographic trends that will only add to the complexity of crafting budgets.

The youngest and oldest people among us draw on government services in various ways, appropriately so. The numbers of preschoolers and particularly people 65 and older will increase rapidly. But working-age Californians, the people who pay the bulk of taxes, will increase by only 4.3 percent, the budget summary notes. Such trends reinforce the need to make wise choices now.

The budget relies on accurate revenue forecasts. But predictions are not reality. Voters last year approved Proposition 39, which closed loopholes that benefited out-of-state corporations. Brown's budget summary notes the initiative was supposed to generate $1billion a year, $1.9 billion over a two-year period. A revised estimate shows the measure will generate $1.4 billion.

Additionally, corporations will receive as much as $600 million in tax refunds in 2013-14. Perhaps they were overly conservative in their tax preparation during the recession. Maybe the state was too aggressive in its tax collection. Whatever the reasons, some money the state thinks it will receive could be illusory.

Further underscoring the need for budgetary sobriety, the governor is deferring some hard decisions until after votes cast in November are counted. Most notably, he is not tackling what he estimates is $80 billion in unfunded teacher pension debt, opting to establish a task force that will offer a solution in 2015. Waiting another year won't make the problem better.

The latest stock market surge might suggest happy times are here again. But Californians have seen booms go bust many times. Brown and lawmakers should use this year's windfall primarily to pay off debt piled up in past years, and avoid most new spending, no matter how nice the concepts might be.