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State of the State Despair


Governor Arnold Schwarzenegger’s State of the State address confirmed the old adage, “there isn’t a dime’s worth of difference between the Republicans and Democrats.” Both parties always seem to expand government. Republican apologists will surely claim that Schwarzenegger’s new positions are a political necessity for reelection. But if outspending the Democrats is the price for reelection, why should supporters of smaller government want to win?

Schwarzenegger’s tenure as governor has been an utter disappointment for those who do not want California’s government to expand. Flashback to the fall of 2003 -- Schwarzenegger ran against Gray Davis in a recall election: the state’s finances were a mess, Schwarzenegger spoke from podiums in front of large signs that show the word “spending” with a red circle around it and a line slashing through it. Hopes for real reform were high.

Unfortunately, those high hopes were not realized. Schwarzenegger did not slash spending to fix our debt problems. Instead, he partnered with Democratic Senators Feinstein and Boxer to promote a bond initiative that papered over the state’s financial problems. Crisis averted -- but so were real reforms.

After a politically disastrous special election in 2005, Schwarzenegger’s latest State of the State speech was not just a move to the left; it was a move beyond the left. Far from cutting spending, Schwarzenegger now proposes increasing spending by more than $220 billion! As Democratic State Senate leader Don Perata noted after the speech, “the governor is proposing a lot more spending than we are.” Other traditional Democratic policy planks, such as increasing the minimum wage, were also proposed by Schwarzenegger.

Opposition to tax hikes is a staple in the Republican party platform. Not surprisingly, Schwarzenegger took pains to emphasize that he was only proposing new “fees,” not tax hikes. Even with new fees, revenue will fall far short of his proposed spending increase. Taxing restraint without spending restraint is not feasible in the long run -- a lesson lost on the Republican leadership in Washington, D.C., as well. California already has the worst bond rating of any state in the country. Piling on more debt will not help. The debt will eventually have to be repaid. And if our bond rating continues to deteriorate, California will be paying back debt at ever higher interest rates.

Still, Schwarzenegger did point out real problems in his speech. Many schools, hospitals and roads are performing poorly in California. However, simply throwing money at these problems while racking up more debt is not the way to deal with them. These problems require more innovative solutions.

Orange County provides a striking example of one innovative solution. A private company was allowed to construct a freeway within the median of an existing freeway and to charge a toll to pay for it. Overhead electronic scanners collected tolls without slowing traffic. The company even provided free roadside assistance to help keep traffic flowing.

Instead of issuing more bonds to pay for freeways, private companies should be allowed to build private toll roads to add to our highway capacity. The companies’ use of market pricing would also ensure that traffic flows faster and more efficiently without adding to our government spending or debt.

Orange County’s freeways illustrate that innovative entrepreneurial solutions to California’s government problems exist. Real reform and thinking outside of the political box is necessary to find solutions. In 2003, many thought Schwarzenegger was that reformer. Unfortunately for California, he has turned out to be another Republican who likes to borrow and spend just as much as the Democrats.

Benjamin Powell is a Senior Fellow at The Independent Institute, Director of the Free Market Institute at Texas Tech University, and former President of the Association of Private Enterprise Education. Dr. Powell received his Ph.D. in economics from George Mason University. He has been Assistant Professor of Economics at San Jose State University, Associate Professor of Economics at Suffolk University, a Fellow with the Mercatus Center's Global Prosperity Initiative, and a Visiting Research Fellow with the American Institute for Economic Research. He is also the editor of the Independent Institute books, Housing America: Building out of Crisis and Making Poor Nations Rich.

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