Why California Democrats crafted a fiscally conservative state budget

Sven Larson Contributor
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Last week, Democrats in the California Legislature sealed a budget deal with Democrat Governor Jerry Brown. The unusual thing about the new budget is that, even though it was crafted entirely by Democrats, it’s fiscally conservative.

Sounds intriguing, doesn’t it? However, friends of limited government shouldn’t bring out the champagne. The fiscal conservatism in the budget deal is minuscule by any principled standards. Furthermore, it only applies to the General Fund, which is less than half of the state’s total spending.

But the size of the deal is less important than the fact that it was made by liberals. In a time when Democrats in Washington, D.C. are so busy spending money that they do not have time to put together a budget, their party peers in California decided to do the impossible. In a state that is practically marinated in big-government liberalism, liberals actually broke with their old spend-as-you-go habits.

Two parts of the California budget deal stand out. First, some temporary tax increases will actually expire. This will put a little bit more money back in the pockets of California’s overburdened taxpayers. Second, the lawmakers promise that if the tax revenue forecasts in their budget deal turn out to be too optimistic, they will not compensate with higher taxes — but with spending cuts.

Several factors drove California’s liberal lawmakers to this deal. To begin with, even they realize that government is out of money. After all, this is the state that sends IOUs instead of checks to taxpayers and to entrepreneurs who do business with the state. At some point, even liberals realize that if you do not pay people what they have earned, your voters will start looking for other candidates.

Another factor was the verdict that financial markets delivered last fall on the spending habits of California legislators. The Golden State shifted more of its borrowing to government-subsidized bond markets because the regular market demanded higher and higher yields to absorb more of Sacramento’s endless stream of new debt. There is a breaking point where even statist politicians realize that the price for deficit-driven spending is too high.

A third factor is that there is an opposition in town. Republicans are emboldened by the Tea Party and by electoral gains on the national level. While they lost the gubernatorial office and only maintained the status quo in the state legislature, they actually saw a small net gain in voter support. The GOP is also under pressure from vocal conservatives to not make any spend-and-tax deals with Democrats.

Adding to the pressure on California Democrats is the fact that Governor Brown has largely stood firm on his belief that it is time to cap state spending.

Hopefully, this new tone in Sacramento can serve as an example to Democrats in Congress. And with a little bit of luck, Governor Brown might even teach President Obama a thing or two about how to run a government.

Sven R. Larson is a research fellow with Wyoming Liberty Group, a free-market think tank. He has written two books and numerous research papers and articles about economic policy, state budgets, health reform and the welfare state. He is often interviewed by TV, radio and newspapers on his topics of expertise.