California offers itself as a model after avoiding fiscal abyss by making ‘ tough’ cuts, raising taxes
LOS ANGELES — California has completed a dramatic recovery, with its governor claiming that the world’s ninthlargest economy has balanced its budget through a combination of severe spending cuts and tax rises that could be a model for America.
Gov. Jerry Brown, a Democrat, took over from Republican Arnold Schwarzenegger in 2010 as the state faced a fiscal abyss, with a forecast budget deficit of $ 26 billion and projected further annual losses of about $ 18 billion until 2015.
Brown has now announced that, following his austerity program, there will be a budget surplus of $ 851 million in the 2013- 14 financial year.
Standing in front of an array of charts at the state Capitol, Brown, 74, said: “The deficit is gone. California today is poised to achieve something that has eluded us for more than a decade, a budget that lives within its means, now and for many years to come.
“I would like to do something that would make California a leader and an example of what America has to do.”
During the recession, America’s most populous state had
The deficit is gone. California today is poised to achieve something that has eluded us for more than a decade.
JERRY BROWN
CALIFORNIA GOVERNOR
come to symbolize fiscal mismanagement. As the property and stock markets plummeted, California’s tax revenue dried up and Schwarzenegger resorted to issuing IOUs to those the state owed money as he tried to pass a budget in the state legislature.
A two- thirds majority is required to pass a state budget and efforts at a bipartisan approach failed. Democrats refused to back spending cuts while Republicans would not accept tax rises. Schwarzenegger at one point called his opponents in the struggle “girlie men.”
As the state’s economy continued to deteriorate, the newly elected Brown proposed billions of dollars in controversial cuts to education and welfare, including health care for children of lowincome families, and secured money from scrapping redevelopment agencies and taxing out- of- state corporations.
Then, in a referendum in November, the people of California approved his plan to give the state a 7.5- per- cent sales tax, the highest in the U. S.
Voters also approved increased taxes on Californians earning more than $ 250,000, with the rich having to pay 13.3 per cent on annual income over $ 1 million, again the highest state tax in the country.
Unemployment has dropped below 10 per cent for the first time in four years, and is projected to be 8.7 per cent in 2014. Brown said: “We achieved the position we’re in because of tough cuts, and then the people voted for taxes. We broke the logjam by going to the people.”
He said those who had “written off California as a failed state” have been proved wrong.
Brown previously served two terms as governor of California in the 1970 and 1980s, and has a reputation for pennypinching. During his tenure 30 years ago, he chose to live in an apartment costing $ 250 a month instead of the governor’s mansion.
The $ 97.7 billion budget for 2013- 14 will see spending rise by $ 5 billion while still allowing a surplus. Previous cuts will be slightly rolled back with an extra $ 3 billion spent on schools and $ 1 billion on health care.
Brown now faces the task of stopping members of his own party from rolling back controversial cuts such as dental care for the poor.
Since the November election Democrats have had a two- thirds “super majority” in the state legislature allowing them to pass measures without Republican support.