Who Killed the Golden State?

“Gray Davis has been great for Arizona,” Rep. J.D. Hayworth (R.-Ariz.) said last week on a California radio show. “California’s leading export to Arizona is Californians and California jobs.”

That aptly describes the trajectory California has been following since Davis (D.) was elected governor in a 1998 landslide. Since then, together with an extremely liberal, Democrat-controlled legislature, Davis has created a regulatory environment so hostile to business that the state’s tax base is re-enacting the 1849 Gold Rush-in reverse.

Now Davis deservedly faces an October 7 recall election, and could become only the second governor in the history of the United States to be removed by voters in the middle of his term.

The Democrats have passed scores of economy-killing bills, burdening businesses with artificially high energy prices, creating stringent new overtime rules, and expanding already-excessive environmental regulations. They also are requiring businesses (starting next year) to grant their employees up to six weeks of half-paid family leave each year, and hiking taxes on specific industries with so-called “user fees” (since actual “tax hikes” require a two-thirds vote in the state legislature).

Spending Spree

This is not just the opinion of conservatives, either. Major financial publications are ruing the death of commerce in the no-longer Golden State. Fortune recently reported that the state has lost 289,000 manufacturing jobs in less than two years.

One company, Costco, blamed its weak stock performance last quarter on California’s extremely onerous workers’ compensation law. The company said that while only one-third of its work force is based in California, two-thirds of its corporate expenditures for workers’ compensation are incurred in the state. Businesses statewide will be paying higher and higher workers’ comp premiums each year as the result of a 71% expansion in benefits that phases in between now and 2005-a product of the same liberal legislature.

But the flight of business from the state provides only part of the explanation for California’s $38-billion budget shortfall. Just as significantly, since the Davis Democrats took total control of the state government, spending has skyrocketed, particularly on social programs. The state’s overall budget has grown by 52%, from $109 billion in 1998 to $166 billion last year.

Between 1999 and 2001, California experienced a “dot-com” boom driven by Internet-oriented businesses. During that time, the state realized a windfall in one-time capital gains tax revenues derived from the sale of dot-com stocks sold at the height of their value. Democrats used these anomalous revenues to mask overspending, recklessly expanding health and welfare programs well beyond what was mandated by federal law. They also approved extraordinary increases in state pension liabilities.

“You had this windfall, in this bubble, of one-time tax proceeds that then vanished and was followed by a collapse as jobs and businesses closed, and tax revenues dropped,” state Sen. Roy Ashburn (R.-Bakersfield) told Human Events.

Even after the dot-com bubble burst and the tax revenues from it evaporated, California liberals were not about to roll back the expanded welfare programs they had created.

“They kept passing more and more laws, more and more rules, more and more spending, as if there were no budget problem at all,” said conservative state Assemblyman Ray Haynes (R.-Riverside).

For example, the Davis Democrats increased the income cap for families eligible to participate in the federal Healthy Families program (a low-cost insurance program for children in low-income families) to 250% of poverty level income. That means that children in a family of four with an annual income of $42,000 are eligible for state-funded health insurance in California. The program’s rolls exploded from 60,000 in 1998 to 600,000 in 2002 as some families dropped their private insurance to go on the dole.

California taxpayers, of course, are forced to cover the full cost of California add-ons to federal welfare programs.

In all, state health and welfare spending grew by 31% between 1998 and 2002, from $41.7 billion to $54.6 billion. Some of that increase was also driven by the large illegal alien population in the state, which is allowed free access to state services. Davis suspended the state’s appeal of a federal district judge’s decision to throw out Prop 187, the popular ballot initiative that made illegal aliens ineligible for state-funded education and non-emergency medical care.

Strangely, the state government now seems to encourage spending on illegal aliens. “There are about $800 or $900 million of state medical programs that are essentially targeted at illegals,” said Haynes.

In the Davis years, spending on primary and secondary education has grown by 53%, from $29 billion to $44 billion. Higher education spending has grown 37%.

Another Davis creation was an entirely new cabinet-level Labor and Workforce Development Agency in 2002 to “combat the loss of jobs,” as one news report described it. It cost $9.5 billion last year, as California continued to lose jobs.

Davis also pushed an extremely generous benefit package for state workers-his most loyal constituency. In 2001, he and the Democratic legislature extended benefits to the “domestic partners” of state workers. They also expanded the number of state workers eligible for early retirement with full pension by designating more and more employees-tax collectors, welfare fraud detectives, and others-as “peace officers.”

Shortly after his narrow re-election last November, Davis announced that the state faced a shockingly high budget deficit of $38 billion, or more than 50% of the state’s general fund revenues for this year.

Davis responded by proposing $8 billion in tax hikes. Minority Republicans in the state legislature, however, held together and denied Davis the two-thirds majority he needed to enact those hikes. After weeks of negotiations, a new budget emerged with no tax increases.

“This is the Republicans prevailing over an overwhelming majority in the state Assembly, the state Senate, and the governor,” said Ashburn.

But even the new budget is less than ideal. It authorizes a $7.5 billion bond issue, defers upcoming pension payments until next year, and transfers billions in “special fund” revenues (a category including highway and other trust funds) into the general budget. It also factors in the revenue from Davis’s recent tripling of the car tax-a measure that is already being challenged in court by Republicans, including Ashburn.

Those deferrals and the new bonds-which will be pricey for the state, now that its credit has been downgraded by Moody’s and Standard & Poors-will affect next year’s bottom line. The state will start at least $8 billion in the hole before spending a penny.

On October 7, when Californians answer the question of who killed the Golden State, the answer should be obvious: the Davis Democrats did it.