- The Washington Times - Wednesday, December 18, 2002

The suspense has ended. California Gov. Gray Davis will not be running for president. As if anyone cared.

Mr. Davis spent $100 million for two recent campaigns. Yet, 60 percent of voters rate him poorly. Incredibly, his Sherman-like statement applies only to 2004. Many California governors have had presidential ambitions. In 1962, Democrat Pat Brown triumphantly defeated former Vice President Richard Nixon, and Mr. Brown's political future looked bright. Indeed, the political obituary of Nixon, who had lost to JFK two years earlier, was then written a second time. Ironically, Nixon later would be elected president. As for Mr. Brown, his hubris in seeking a third term allowed for Ronald Reagan's triumph in 1966.

In turn, Mr. Reagan prematurely tried for the 1968 Republican presidential nomination against Nixon. Mr. Reagan was taken more seriously against Gerald Ford in 1976. And four years later, Mr. Reagan became president.

Who became governor after Mr. Reagan? Jerry Brown, the son of the same Pat Brown whom Mr. Reagan had defeated nearly a decade earlier. And Democrat Jerry Brown, like more recent Republican Gov. Pete Wilson, failed as a presidential candidate.

As "Governor Moonbeam," the unfocused Mr. Brown relied on his methodical chief of staff, a self-absorbed workaholic named Gray Davis. And what happened to Messrs. Brown and Davis nearly a generation ago may have shaped how Mr. Davis has now governed California.

In June 1978, while Jerry Brown was running for re-election, voters passed Proposition 13. This was the Jarvis-Gann property tax relief initiative. Mr. Brown had led the opposition to Proposition 13. Suddenly, he became its champion to win re-election in November. But the lesson not lost on Mr. Davis was how Proposition 13 won. It was losing until enraged voters learned the state had a large surplus. So they reasoned, why not reduce, and even permanently limit, property taxes?

Now, nearly a quarter-of-a-century later, Mr. Davis is governor. California has a massive budget shortfall that Mr. Davis predicts is (get this) "in the high $20 billions" probably over 18 months. In reality, the deficit could run for several years. As Everett Dirksen would say, "Pretty soon, you're talking about real money." California Republican State Sen. Tom McClintock has explained these facts under Mr. Davis' first term in office. Population and inflation combined for a 22 percent increase. Revenues grew at 28 percent. How could there be a deficit? The state budget increased a staggering 36 percent.

In other words, it's spending, stupid. At the outset, when the economy was healthy, Mr. Davis spent every cent, and then some. Perhaps Mr. Davis was afraid to show a surplus? Over-taxation might precipitate another Jarvis-style taxpayer revolt.

But what can the nation learn from California, and similar fiscal nightmares in other states?

Consider how, during the last decade, some trendy Wall Street analysts claimed a "new paradigm." But economic cycles remain. And, as Milton Friedman has demonstrated, governments are more prone to magnify, not soften, those cycles. A stock speculator may presume endless capital gains, but why should government? Yet, that's what exactly what Mr. Davis and other state governments assumed. They not only assumed a permanent bull market. They treated extraordinary tax revenue from extraordinary capital gains as, well, normal. It's as if a corporation treated non-recurring income as ordinary income.

In California, the prison guards union now trumps the teachers unions. The prison guards alone received a pay increase of about $500 million dollars. Virtually all the state employee unions lobbied Mr. Davis to expand state programs. The Davis annual spending in four years leaped from $57 billion to $79 billion. If it had increased half as much, there would be no deficit.

Was the only alternative giving back the money to taxpayers? Mr. Davis could have spent the sudden surge in revenue on one-time projects, especially repair of the state's infrastructure. The reality is that government borrowing must be amortized, and that often means higher taxes to fund interest payments. Why borrow money for capital projects, if you don't have to?

The early surplus should have been invested in assets, not consumedin payables. Suppose you inherited money. Would you spend it all in one year? Mr. Davis not only spent it right away. He hired more government employees. In other words, he raised state spending, seemingly permanently, to unsustainable levels.

Who will now support Mr. Davis to curb spending? Not his fellow Democrats. At least four of them want his job. They are Lt. Gov. Cruz Bustamante, Attorney General Bill Lockyer, State Treasurer Phil Angelides, and Insurance Commissioner John Garamendi. They will compete now for the future support of government unions.

The last budget crisis was under Pete Wilson, who expanded sales taxes, for example, to include newspapers and magazines. Now, the Davis administration explores expanding sales taxes to include accountant and lawyer fees. Imagine paying $400 an hour plus 8.25 percent sales tax. Smokers might face yet another tax increase. The elitist reality is that smokers are disproportionately lower class, less likely to vote.

Meanwhile, populist conservatives consider an alliance with egalitarian liberals for a split-roll property tax. That means business would pay a higher property tax rate than homeowners. In contrast, the original Proposition 13 applied uniformly.

California has a full-time, well-paid state legislature. But the state was better off with part-timers who worked in real jobs. They would have known better. They would not have lived beyond their means.

Arnold Steinberg is a political strategist who has created and advised political campaigns in many states. He has written about the impact of California politics on the nation.

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