What?! California is flush?

The governor must hold the line on spending now that the state’s economy is strong

Hoo boy. We now learn that the economy in California is so strong that taxes are pouring into Sacramento from households’ higher earnings, and this means that next year, the Legislature and Governor Arnold Schwarzenegger will hardly have to cut back spending at all.

And that’s awful news. Yes, you read me right. Have I got you confused? It’s really pretty simple. After driving California into the biggest deficit in any state’s history, and after losing one governor to a recall, the Sacramento Legislature never learned even a mild lesson from its bad behavior.

A few key reforms were made—particularly the highly successful reform of workers’ comp that has stopped the ruination of many small businesses and nonprofits in California. Other reforms helped us regain a somewhat OK credit rating on Wall Street. The Legislature balked every step of the way.

Now, the same players, with the same arrogant attitudes toward our money, can’t even be beaten back by using a fiscal crisis for an honest excuse. If Sacramento has plenty of taxpayers’ money, what are the chances that the Legislature will, for the first time in years, create a true rainy-day fund for bad times that are sure to come?

The chances are zero.

What are the chances that the Legislature will get all excited and spend every penny on metastasizing programs that are virtually impossible to cut back once they have begun?

The chances of that are 100 percent.

In 2003, a think-tank study published after California went into the hole by more than $20 billion found that most states, including New York and California, had spent themselves silly because the Legislatures nationwide all believed the same thing: that taxes would keep pouring in.

I have a prediction to make: Governor Schwarzenegger, chastened by his losses on November 8 and now working with the Democratic Legislature to fashion plans for next year, will go too far.

Yes, he will be more conciliatory. It’s about time. But he also, I suspect, will forget what happens when California’s economy pales: We very quickly lose a few thousand millionaires.

Because California taxes its millionaires at an extraordinary level, when we lose a few thousand millionaires to a downturn, several billion dollars vanish from the state budget.

In fact, during Gray Davis’ time, we lost $9 billion when several thousand millionaires went broke, moved out of the state or otherwise vanished from the tax rolls, according to state officials.

After that happened, the Legislature seriously considered taxing all of us for every single thing we pay sales tax on. Remember the “desperately needed” half-cent sales tax to raise $8.2 billion in 2003? It would have almost exactly replaced the $9 billion we lost when the millionaires went bust.

Remember the vast array of new taxes and fees the Legislature tried to force through that spring? The often pro-tax Los Angeles Times summed it up by saying, “Democrats are threatening to approve a crazy quilt of fees that can be pushed through the Legislature” if the Republicans refused their statewide tax increase.

The governor is saying that things are so rosy he’d like to seek approval of a $50 billion bond to fix roads, schools, reservoirs and dikes—one-time, but crucial, items that California’s statehouse has ignored for two decades.

Quite a concept—spending taxpayers’ money on long-overdue and closed-ended cost items we all want rather than open-ended costs and ever-metastasizing programs.

The long-ignored biggie is the roadways, of course. They look and feel like something in Eastern Europe or, worse, New Jersey. And let’s not forget the crumbling dikes—one of which broke a while back and flooded a vast farmland area near Stockton.

Infrastructure is one of the very few true responsibilities of this nation’s 50 state Legislatures—and the one thing Sacramento never spends dough on. We’re so bad off that Arnold’s $50 billion plan would provide less than a third of what is needed.

As conservative and anti-tax activist Steve Frank pointed out the other day, a study commissioned in 2002 by wealthy businessman Bill Simon showed it would take $180 billion to fix the infrastructure mess.

Frank and I may disagree on where California should spend its money, but not on the likely outcome of this newly emerging “Wow! We have plenty of money” attitude. As Frank noted, “The total interest costs will be $40 billion, for a total repayment of $90 billion.”

Should the Legislature and governor behave next year as if California is now flush, spending to the limit and beyond while asking the rest of us to approve a massive new bond? Like I said, hoo boy.