Californians dreaming of an end to fiscal nightmare

THE crisis of state finance in California is bigger than in the state of Washington and not only because California is a bigger state. The mistakes California made were proportionately bigger, though they were some of the same mistakes Washington made.

Before the recession hit, this page said repeatedly that our Legislature was ramping up spending too fast. California did it even more dramatically, much of it through voter initiatives that demanded good things without the money to pay for them.

California's tax structure is more aggressive. In addition to a sales tax it has a personal income tax. California designed its income tax to lay heavily on the wealthy, so that in good times it had a bountiful harvest of capital gains. In bad times, revenues plunged.

Washington taxes corporate revenue; California taxes corporate profit. When a recession hits, profit falls more.

And so, in a year when lawmakers in Olympia confronted a budget with about a 20-percent hole, the California budget had a 35-percent hole. On July 2, California ran short of cash and began buying supplies in IOUs. On July 8, the Federal Deposit Insurance Corp. reminded banks that these IOUs were not backed by the federal government, and two days later Chase Bank stopped accepting them.

There was talk of a federal bailout of California, but there wasn't the money for it. California was on its own.

Apparently, that concentrated minds, because Tuesday the Golden State announced that Republican Gov. Arnold Schwarzenegger had reached an agreement with Democratic leaders on a package of cuts, employee furloughs, appropriations of money due local governments and even a measure to allow more offshore drilling in the Santa Barbara Channel.

Our own government is not yet out of the woods. Budget Director Victor Moore says the budget that went into effect July 1 will probably have to be cut because of revenues that continue to fall below expectations.

But we are not in the position of California.