Our Budget Boondoggle

The news out of Sacramento was good last week if you are a state worker, teacher or prison guard. At first glance it looks like the state brought in more money this year than was expected, hence the pay raises for government employees and pension plans.

You may ask how the state took in so many more of your dollars.

First, let's thank smokers. I know they are a dying breed, but without them we could not come close to balancing the budget. The 1998 Tobacco Settlement Act pays California $10 billion over 25 years. Cigarette manufacturers raise smokes another buck and, bingo, California gets billions. But why wait 25 years if you can get it now? California borrowed almost $4.5 billion of that 25-year payout in 2003 to balance the budget. The state securitized that revenue stream, and when the money comes in from the tobacco companies we just give it to Wall Street with interest. It worked so well we did it again: Less than four years later we borrowed an additional $1.2 billion to balance this year's budget.

Second, the governor proposes to sell the EdFund, which guarantees student loans in the state. A $1 billion, one-time boost that I'm sure will allow Wall Street to be extremely generous to our California college students — not to mention the loss of income down the road.

A closer look at the numbers and you find that all of these one-time revenue-generators are really borrowing against future revenue to pay today's expenses. Making one-time sales of government assets is like refinancing your house to buy groceries. Sooner or later the borrowing comes due.

But the state can be more creative than that. With these $3-plus gasoline prices, the state is raking in extra gas and sales tax (California makes more on a gallon of gas than Exxon). Proposition 42 and Proposition 1A force the state to use most of this money on transportation projects. What a novel idea, gas taxes for roads!

Well here's an idea: Why don't we move $627 million from the public transportation account to a new budget line item, "home-to-school transportation"? That's right, in one fell swoop we moved more than $500 million to pay for school buses. Forget that this used to be a school expense. Now it is taken out of your gas taxes — a slight of hand that would make an Enron chief financial officer blush.

When doing a long-term business deal — which is not unlike what the state budget is — what sense does it ever make to sell off a potential long-term revenue source for a mere percentage of the total worth? Sure, you may make some teachers and prison guards happy in the short term, but what about a few years down the road when we don't bring in money from these long-term revenue sources?

Case in point: To balance future budgets, Gov. Arnold Schwarzenegger is also planning to lease the state lottery for 40 years to some hedge fund for a lump sum of around $37 billion. He'd sell it but the state Constitution won't allow it. Last year, the lottery brought over $1.3 billion to our schools. Over the next 40 years, the lottery would bring in an estimated $90 billion — a $53-billion loss no one seems to mind.

In California, we do not have a revenue problem; we have a spending problem. We are not going to solve the problems of today by sacrificing the future. First and foremost, we need to balance the budget the old-fashioned way, by reducing spending and keeping it less than what we bring in.

Sure, we can make some people happy today by selling off our assets, but what about five or 10 years down the road?