Leave it to Wall Street to lay it on the bottom line.
Ticked off that state legislators resolved the budget crisis by applying a Band-Aid instead of performing major surgery, Moody’s Investors Service chimed in right after Governor Gray Davis signed the budget, with a rousing vote of no confidence in the state of California. The agency bumped the state’s bond rating to one of the worst in the country.
After months of bad, worse and worst news about the California economy and state budget, the overview from Wall Street has to be the topper. A signed budget does not equal a sound budget. Suffice it to say we’re disappointed with our so-called leaders. Big time. (Can a legislator be recalled?)
Despite cutting a few billion and borrowing billions more through the sale of deficit bonds, the state’s new $99.9 billion budget does nothing whatever to solve our long-term fiscal problems.
The people on Wall Street know this. They are realists, not politicians without backbone.
The budget passed at this time and in this sorry shape for one reason: the recall. Davis and the Democrats simply had to get the budget crisis behind them so as to shift their attention to the looming October 7 recall election and the ever-more-bizarre field of candidates (Arnold, Arianna, Angelyne … and that’s just the A’s) attempting to remove Davis from his job.
Anyone who looks honestly at the budget fiasco knows that California’s crisis was a long time in the making. Indeed, much of the current budget crisis emanates from the passage, in 1978, of the voter-approved Proposition 13, which gave millions of Californians property-tax relief but also caused a calamitous shift in state financing toward a greater reliance on personal income taxes. In fact, reliance on such taxes increased from 18 percent of the state’s general fund in the early 1960s to a whopping 48 percent by 2002. So, when the stock market took its nose-dive in 2000, California’s reliance on those taxes proved a disaster.
But instead of seeing the crisis coming and preparing the state for a fall, Davis and the Democrats continued spending money throughout the late 1990s and into the new century, ignoring the looming crisis and sinking their heads deeper and deeper into the sand.
Meanwhile, the Republicans—a stubborn minority in California politics—acted reprehensibly during the crisis, by blocking whatever reasonably tough solutions Democrats finally, at long last, were willing to propose. Politics is supposed to be about the art of compromise, but the state’s GOP leaders seemed to miss that concept in their high-school civics classes.
Ultimately, we agree with Moody’s. We lack confidence. We’re disappointed. We’re tired of lousy leadership on both sides of the aisle. And we’re apprehensive about the future of our state.