Californias public finances are deep in red ink. Although a weak national and regional economy surely has contributed to the failure of state tax receipts to grow as briskly as forecast in Sacramento, the state finds itself in a fiscal bind mostly of its own making.
Like many states, Californias elected officials responded to the robust revenue growth of the 1990s by embarking on a spending spree, shortsightedly incurring debt and expanding state programs and public payrolls. Now that the chickens have come home to roost, only two options seem to be on the table: increase taxes and cut spending.
Rounding up the usual suspects, Gov. Gray Davis wants to soak the "rich" by raising the top marginal state income tax rate by a percentage point, to place heavier burdens on low-income taxpayers by raising the state sales tax half a percent and to boost the state excise tax on cigarettes by $1.10 per pack. By combining such taxes with spending cuts and increases in fees, Davis promises to close the states budget gap, put at nearly $35 billion.
Though spending cuts are welcome and long overdue, Californians should resist Sacramentos demands to raise taxes. The experience of the past decade proves that the state will consume every dollar it collects in taxes and more.
The state budget crisis will be ameliorated over time by the resumption of a more vigorous economic expansion. Raising taxes and fees permanently would be counterproductive.
Happily, there is another solution: sell off some of the states assets.
According to a report issued by the state auditor in January 2000, agencies of the California government own more than 1 million acres of real estate in 15 high-land-cost counties.
Thousands of parcels of state land already have been identified as candidates for disposal because they are either unused or underutilized. In September 2001, for instance, 152 acres in Santa Clara sold for $149 million. The Legislature had declared it "surplus property" in 1996.
Although authority to dispose of most of these real estate assets has been granted, the state auditor notes that the agencies often have failed to act expeditiously, in the process forgoing opportunities to generate millions of dollars in revenue. Within the past decade, for example, Caltrans finally sold a piece of property it had designated as surplus 38 years earlier.
Selling or leasing government-owned real estate already considered superfluous is an obvious place to start closing the budgetary gap, but that is only the tip of the iceberg. There are myriad similar opportunities for reducing state spending through asset divestiture.
Many of the office buildings owned and occupied by governmental agencies could be transformed into ready cash by selling them to the private sector under lease-back arrangements.
Local governments likewise can get into the act, relieving some of their own budgetary headaches by disposing of money-losing sports facilities, convention and exhibition halls and fairgrounds.
No legitimate purpose of state or local government is now served, if it ever was, by public ownership of assets that would be deployed more cost-effectively in the private sector. Selling these and other public assets, as well as privatizing inefficient operations, would transfuse billions of dollars into anemic public finances.
To be sure, privatization offers a means of supplementing the public budget that can be tapped one time only. But extraordinary budget times demand extraordinary measures.
In addition to avoiding further spending cuts or tax increases in the short run, privatization has the long-run benefit of getting the state out of the business of managing assets that it should not have had in the first place.