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PD Editorial: Temptations of a brighter budget picture

  • (TOM MEYER / meyertoons.com)

California tax revenue rises and falls like the tide, driven up and down by the gravitational force of the world's ninth-largest economy.

After several years stuck in a deep trough, the tax tide is swelling once again.

In January, revenue from income, corporate and sales taxes beat budget projections by $4.3 billion and topped last year's receipts by nearly $7 billion. It was the biggest January in a decade, according to the state controller's office.

One strong month doesn't make a windfall.

It is, however, consistent with numerous projections of a rosier fiscal outlook for the state, resulting from a recovering economy and temporary income and sales tax increases approved by voters in November.

What's harder to predict is whether state officials will resist the temptation to spend now without any thought about the next downturn.

In the not-too-distant past, budget surpluses became justification for costly new programs, most notably enhanced pensions for public employees, and hefty tax cuts, specifically the vehicle license fee.

Inevitably, the economy slowed and the revenue tide receded, yet pensions and other permanent spending commitments remained. When the “temporary” reduction of the vehicle license fee was rescinded, Gov. Gray Davis was recalled and the tax cut was restored.

Five years later, the economy collapsed, revenue tanked, and more people qualified for Medi-Cal and other public assistance programs. Many people sensibly asked why the state hadn't salted some of the surplus away for hard times.

With the tide rising again, it's time to revisit that question.

As the Legislature begins writing a new state budget, you can expect to hear calls to restore many of the programs that sustained cuts in recent years. If revenue stays ahead of projections, you also can count on calls for a tax rebate or an early end to the temporary tax increases.

But it's also a good time for caution, which Gov. Jerry Brown seems to understand.

In his State of the State address, Brown, who trained for the priesthood before choosing a career in politics, turned to the Old Testament story of Joseph interpreting the pharaoh's dream about seven cows as a sign to save for hard times.

“The people of California have given us seven years of extra taxes,” Brown told state legislators. “Let us follow the wisdom of Joseph, pay down our debts and store up reserves against the leaner times that will surely come.”

That's good advice, but Brown can go a step further.

As part of the state budget deal in 2010, his predecessor, Gov. Arnold Schwarzenegger, persuaded legislators to put a measure on the ballot requiring a rainy-day reserve as part of the state budget.

Schwarzenegger's measure was pulled off the 2012 ballot. Brown should make sure that voters get to decide that issue in 2014.

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