Gov. Arnold Schwarzenegger just released his revised budget proposal. To close the $17.2 billion gap between the spending desired and the revenue growth projected, the governor is recommending securitizing future lottery revenue or increasing the sales tax. As soon as November, pending legislative approval, voters could have the chance to vote for even more state debt. Rejecting the proposed ballot measure would trigger a sales tax increase of 1 cent for up to three years. Schwarzenegger’s budget does keep some of the two percent across‐​the‐​board spending cuts the administration called for in January and renews his call for a spending limit and rainy day fund.


Interestingly, in his comments, the finance office director notes that the underlying problem in the state is the tendency to spend one‐​time revenues on spending increases that continue indefinitely. Unfortunately for Californians, their proposed solution is not to reduce the size of the state government, but to call for a rainy day fund to smooth fluctuations in revenue growth, which will be funded by more debt.


Hopefully, as legislators consider the spending plan for 2008-09, they will take a closer look at reducing spending and enacting a spending limit to address the underlying problem of unsustainable spending growth.