Nov. 12 (Bloomberg) -- California Governor Jerry Brown likes to brag about how frugal he is. He refused to live in the state mansion during his first term three decades ago and shunned the office’s Cadillac limousine for a Plymouth Satellite sedan.
Now the 74-year-old, who trained to be a Jesuit priest, vows he’ll be as sparing with the $47 billion in higher tax revenue approved by citizens of the most populous U.S. state last week. Yet he must contend with fellow Democrats who -- when all votes are counted -- may have a veto-proof two-thirds majority in the legislature, giving them unchecked power on taxes and spending.
“The voters have trusted their elected representatives, even trusted me to some extent, and now we’ve got to meet that trust,” Brown told reporters at a statehouse news briefing the morning after the Nov. 6 election. “We’ve got to make sure over the next few years that we pay our bills, we invest in the right programs and that we don’t go on any spending binges.”
Proposition 30, the first voter-approved state tax increase in eight years, gives Brown a chance to mend the tattered finances of the world’s ninth-largest economy. He has the opportunity to restore California’s reputation for world-class universities, schools and infrastructure built under his father, Governor Edmund G. “Pat” Brown in the 1960s.
His plan, which passed with 54 percent of the vote, increases the statewide sales levy to 7.5 percent from 7.25 percent, and boosts tax rates on income starting at $250,000. Those making $1 million or more will pay 13.3 percent, the most of any state. The measures will raise an estimated $8 billion this year and $6 billion annually before expiring by 2018.
The taxes are part of a broader plan Brown brought to office in January 2011 to forestall further deficits after the state suffered through more than $213 billion in combined shortfalls in the past 12 years. The budget gaps were papered over with internal loans and fund shifts under Democratic Governor Gray Davis and Republican Governor Arnold Schwarzenegger, building what Brown calls a “wall of debt.”
Standard & Poor’s, which rates the state’s credit A-, six levels below AAA and worse than any other U.S. state, said the tax increase was a positive development and puts California in position to repay $34 billion of debt by 2016.
“The measure actually does more than just boost the state’s revenues temporarily,” Gabriel Petek, a San Francisco-based S&P analyst, said in an interview. “It adds credibility to the governor’s plan to repay a lot of its budgetary debt and liabilities over the next several years.”
Brown, who was governor for two terms in the 1970s and early 1980s, likened his task to that of Joseph in the Book of Genesis. A Hebrew slave in Egypt, Joseph interpreted the pharaoh’s dreams as a warning that seven years of plenty would be followed by seven of famine, and counseled the king to stockpile grain during the time of abundance.
“We need the prudence of Joseph going forward over the next seven years,” Brown said. “And I intend to make sure that that’s the story that we look to for our guidance.”
Brown sold his tax increase in part by tying its fate to the public schools, which would have suffered unprecedented cuts had it failed. The budget he and Democrats passed in June would have automatically slashed $6 billion from education in January unless the ballot initiative passed.
Such a reduction, the equivalent of cutting three weeks off the academic year, would dramatically deepen school financial troubles that have seen per-pupil spending plummet to 35th nationally from seventh when Brown was in office last.
“You know what he does? He tells it like it is,” said Senate President Pro Tem Darrell Steinberg, a Democrat from Sacramento. “He came into office and saw the deficit and said we need half cuts and half revenue, so that the cuts are not any more deeper than they need to be.”
Brown has burnished his reputation for penny-pinching. Since taking office, he confiscated half of employees’ 96,000 state-paid mobile phones, trimmed the government’s fleet of 13,000 vehicles in half, froze hiring, and stopped agencies from spending taxpayer money on giveaway promotional items such as key chains, coffee mugs, t-shirts and squeeze toys.
When he travels to his office in Los Angeles, the state’s largest city, he usually flies coach on Southwest Airlines.
“I’m the only governor to ever take a vow of poverty,” Brown, a seminarian in the 1950s before leaving for law and politics, told a Los Angeles crowd Oct. 31. “I took a vow of poverty, chastity, and obedience. I’ll just focus on the poverty.”
While Brown has touted his austerity, he hasn’t shied from big-ticket spending. While he was asking voters to pay more in taxes, he also was advocating a $68 billion high-speed rail line to link San Francisco and Los Angeles, even though polls show waning support amid the deficits and cuts.
Brown’s $91.4 billion budget for the fiscal year that began July 1 is 5 percent larger than the previous one, mostly from the tax increase. An overhaul of public-employee pensions Brown signed into law in September failed to include a so-called hybrid plan that would have made workers share some of the capital-market risk now borne by taxpayers.
Democrats have deflected calls for hard spending caps and a larger reserve that Republicans have sought for years. Without those, critics such as former Schwarzenegger press secretary Aaron McLear say Proposition 30 doesn’t go far enough.
“Prop 30 doesn’t solve anything,” McLear, who was also the spokesman for opponents of the tax increase, said in an interview. “Prop 30 papers over our dysfunctional system. It’s a bailout. It doesn’t have any reforms.”
Democratic leaders in the Assembly and Senate, where neither party has held a two-thirds majority in both chambers since 1933, say they don’t intend to use their new power to raise taxes. They say they want to change the code to bring in more revenue, such as by applying the sales tax to more services.
For his part, Brown made it clear he won’t sign a bill that raises taxes without voter approval.
“Desires will always outgrow the available money, and that’s why we have a governor,” Brown said. “The machine can speed up and get overheated. The governor is a mechanism to slow it down as it attempts to speed it up.”
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