When Jerry Brown departed from his first governorship in 1983, he left behind what later became known as a “structural deficit” in the state budget.
It’s a deficit that results from spending commitments that outstrip revenues even when the underlying economy is doing well, rather than one caused by recession.
Brown’s structural deficit stemmed from two actions in the immediate aftermath of the 1978 voter approval of Proposition 13, the state’s iconic property tax limit.
Brown, then seeking a second term, famously morphed overnight from a Proposition 13 foe to a self-proclaimed “born-again tax cutter.” He and legislators cut state income taxes to align themselves with the mood of voters as they enacted a multibillion-dollar “bailout” of schools and local governments to cushion Proposition 13’s tax cut.
Raising spending while lowering taxes threw the budget into an immediate operational deficit, which was financed from reserves until they ran out as Brown ended his second term.
Over the next two decades and three governorships, the structural deficit remained a headache, and then exploded during a sharp recession early in the last decade because then-Gov. Gray Davis and legislators had irresponsibly spent most of a one-time revenue windfall on permanent new spending and tax cuts.
It cost Davis his governorship, and his successor, Arnold Schwarzenegger, although promising to end “crazy deficit spending,” made it worse by cutting car taxes and also squandering a brief windfall. Those actions, plus a severe recession, left a massive deficit for Brown when he returned to the governorship in 2011.
Last week, the Legislature’s budget analyst, Mac Taylor, proclaimed that the structural deficit had disappeared due to spending restraint, an improving economy and proceeds of temporary sales and income tax hikes.
Furthermore, he said, the state will see substantial surpluses over the next half-decade and even the expiration of the temporary taxes will not push the state back into deficits. Seemingly, therefore, the long fiscal nightmare has ended.
There are, however, caveats on that rosy scenario.
It barely touches immense liabilities for pensions and retiree health care, and it assumes that the economy remains upbeat and that politicians restrain spending and create a reserve to cushion future downturns.
Brown clearly wants to follow that path and is discouraging fellow Democrats and liberal advocates who want to ramp up spending, especially on health and welfare services that have been reduced.
The next few years, therefore, will be a test – one that the Capitol has often flunked. Can it resist pressure from constituencies on which politicians are dependent for campaign support?
After 35 years, is this truly the end of the structural deficit, or just another temporary respite?