Beware of California’s obscene budget surplus

Here’s a cautionary tale for California politicians who think voters will forever tolerate rising taxes as Sacramento swims in budget surpluses.

In 1978, virtually every political institution in California opposed Proposition 13, including big business, labor, local governments, and education advocates. Then voters stunned the elite political class by enacting the iconic tax-cutting initiative, a constitutional amendment that legislators couldn’t touch, by nearly a two-thirds vote.

The passage of Proposition 13 was driven by both fear and anger. The fear that motivated voters to the polls is easy to understand. Although unthinkable today — thanks to the security provided by Prop. 13 — in the mid-70s homeowners were literally being driven out of their homes by high property taxes. Howard Jarvis himself witnessed a despondent widow plead her case at the public counter in the L.A. County Assessor’s office where, regrettably, she collapsed and died of a heart attack.

The terrible fear of losing one’s home, even if the mortgage had been fully paid, was matched only by anger. If citizens believe today’s political environment is divisive, it was more so leading up to the election in June of 1978. Even those who cared little for politics rose up in rage after opening their annual property tax bills.

Part of that anger was driven by Governor Jerry Brown’s admission that California was sitting on a massive surplus. It was so large that California’s treasurer at the time, Jesse Unruh, labeled it as “obscene.” To Californians, the sight of government sitting on wads of cash while homeowners were losing their homes due to excessive taxation was just more gasoline on the fire.

Are today’s politicians making the same mistake? The Legislative Analyst recently reported a budget surplus of $31 billion. It’s more than double the surplus that had Californians so angry in 1978. That “obscene” surplus was $3 billion, which is $12.7 billion in today’s dollars.

Political leaders in other states, most of which have surpluses too, aren’t waiting around to provide relief to beleaguered taxpayers. According to Katherine Loughead, a senior policy analyst at the nonpartisan Tax Foundation, “A lot of state budget officers are seeing projected revenue growth for the next couple of fiscal years. A lot of states are looking for more ways to become more attractive to workers.” That includes tax cuts.

Several states have proposed reductions in both corporate or personal income tax rates and Arkansas will consider cutting rates in a special session. Another half a dozen states added tax exemptions for federal stimulus money or unemployment payments or reduced property and service taxes. And in Kansas, Gov. Laura Kelly, a Democrat, has proposed tax cuts on groceries as has Virginia Gov.-elect Glenn Youngkin, a Republican.

But here in California, the tax-and-spend machine is in full operation. Given the sorry state of one-party rule, very few serious discussions about tax reductions are being held. Quite the opposite. Assemblyman Phil Ting, Chair of the Assembly Budget Committee, has his eye on massive expansion of state government: “Our strong financial standing also made it possible for us to reimagine the state’s future, helping us create new programs, such as transitional kindergarten, climate resiliency, more housing and universal school meals.”

It is doubtful California voters will ignore the state’s current “obscene” surplus forever. But what will Californians do about it? Will they, as they did in 1978, launch a new tax revolt with new initiatives and elect fiscally responsible leaders? Or perhaps they will vote with their feet.

Jon Coupal is president of the Howard Jarvis Taxpayers Association.