CA Revenue Surge Leaves Underlying Problems Unaddressed

The state remains broken and broke

California, the ninth-largest economy in the world, is a profoundly troubled state. It remains badly broken in many fundamental ways even as the national economy slowly but steadily emerges from the Great Recession and as cash from November's voter-approved tax hikes pours into the state treasury.

The tax increases have, to be sure, provided short-term budgetary relief, even a multibillion-dollar surplus, after years of multibillion-dollar deficits that were papered over with phony economic assumptions, accounting gimmicks, massive borrowing and raids on the treasuries of school districts and other local governments. Indeed, state Controller John Chiang says that April was the first month in six years in which the state was able to pay its bills without raiding internal funds.

This flood of new cash has cast a glow over Sacramento — a giddiness that all is well again in the Golden State.

But compelling arguments can be made that the tax hikes were the worst thing that could have happened. First, they did nothing to provide the broader structural economic reform needed to prevent severe long-term financial distress and the degradation of basic public services that would go along with it. Second, the income tax hikes, which targeted the wealthy, only worsened California's vulnerability to destructive boom-and-bust budgeting should an economic downturn strike again. And third, the false sense of financial security that they spawned is leading the Legislature to continue to blithely ignore the reality and the severity of many core problems.