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Governor Jerry Brown on balancing California's budget

Governor Jerry Brown of California photographed at Google headquarters on September 25, 2012 in Mountain View, California.

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After years of soaring budget deficits in California, Governor Jerry Brown last week proposed a budget that was in balance. In fact, there was a one billion dollar reserve. Governor Brown joins Marketplace Morning Report host Jeremy Hobson to discuss how he turned his state around.


On how he managed to get California to a balanced budget after years of deep deficits:

Well, I didn’t just propose it this year. Two years ago, I started by making adjustments and severe reductions in the California state budget. I encountered a $27 billion dollar deficit, and the first year we had to make very painful cuts across a wide swatch of government activity – education, social services, prisons – you name it, we did it. I also asked for Republican support to put a tax measure on the ballot. I could not even get one vote – I needed four. So I had to go to the initiative, which in California is system where with 800,000 signatures one can put a constitutional measure before the people to be voted on. And that’s exactly what happened, that was Proposition 30. It passed overwhelmingly by more than 55 percent of the vote, and that will then inject billions of dollars into our budget so that now we have cut $3, but we’ve also raised $1 from taxation. So together, it’s brought California its first balanced and sustainable budget in 15 years.

On the image of government in today’s politics:

There is a kind of a meme going around Washington and the country that when government does something, it’s bad. Government invests in the National Science Foundation, it invests in our military, it invests in medical research, in the interstate highway system, Amtrak. There’s a lot of good things that are going on. Contrary-wise, in corporations we have banks that cost the country over $7 trillion and drove millions of people out of their homes and out of their jobs. So it’s not about cutting government or cutting banks, it’s about making intelligent decisions about spending money wisely for those things that are important and vital to our common welfare.

On which cuts to the state budget were the most difficult:

Well, I don’t even like to repeat it. We reduced the pensions of the elderly, we cut back on the money that we provide to families that are on our social welfare, the CalWORKS program. We cut 25 percent from the university. We eliminated entirely the state redevelopment program for economic development. We eliminated the subsidy for open space. And on and on – it was brutal. But we’ve come through it, and luckily California is a state that invests more than any other state in its education, its health care, and in other things. So, we start from a very rich base, but we did cut it back, and we did win the respect of the people and $7 or $8 billion this year, and a similar amount over the next several years.

On concerns about California’s long term fiscal future:

We’re not living paycheck to paycheck. People who buy homes take out 30-year mortgages. We have obligations that extend 30 and 40 years from now. We are handling them. California generates $2 trillion of gross domestic product. We’re the ninth largest country, if we were a separate country, in the world. So, yes, we have liabilities – retiree health care, pensions, we also have issued bonds for our roads, for high speed rail, for water projects. We’re building for the future. California is still a golden dream that draws people from all over the world. And we stay that way, not by climbing in a hole, but by getting out and investing and encouraging the most creative among us.

On what makes his state different from Texas:

Can I give you another statistic? Texas has five times more people. They have about ten percent or eleven percent of their population working at either below or at the minimum wage. That devastates families. In California, it's below two percent. So you have to look... Our debt for students coming out of our universities is lower than most of the states. And I would eventually say lower than Texas. So, look, there are times in a decade when one state does better than another. But if you look at the totality -- looking backwards, looking forward -- California has challenges. But we are well positioned to maintain and enhance our role as an innovator for the United States and for the world. By the way, we get fifty percent of the venture capital investment -- the money that goes to the most innovative businesses. So, on that measure, we do a lot better. But Texas has... They're doing well in manufacturing, they're doing well in investing in wind. Maybe they have a lower debt. Maybe their debt is too low. Maybe they should be investing in the kinds of innovation and technology that will serve their citizens in the future.

On whether high taxes will drive people to leave California:

There are studies that show that divorce sends more people out of California than raising the taxes. The taxes in New Jersey, home of Mr. Christie, were raised but people didn’t move to New York or move to Connecticut. So, there will be some leaving. People come, people go. Silicon Valley is the most powerful engine of creativity in the world. If people want to be part of that, they stay here.

Hollywood is also a center, but the other states give lavish subsidies to get people to make movies, and we do that to a degree, but we are not going to have a race to the bottom where the state is supposed to pay for every private sector project we want to attract. That is a losing strategy that I would hope other states would get off.

On what Washington, D.C., can learn from California:

Well, what you learn is the Republicans are really stuck on this no tax pledge. They think starving government is the most important thing in life, and I think that’s preposterous. Not to say that there isn’t waste, not to say that we don’t have to be frugal in government – and I challenge anyone to beat the California model. However, at the end of the day, America has to govern itself. We have two parties, they have got to get out of their comfort zones or America, the superpower, will diminish. This is a big challenge. I don’t know if the Republicans are up to it. I don’t know if the Democrats can entice them or charm them over, but America cannot lead the world in the way that it has historically unless this partisan gridlock is transcended by a vision of what America is. And I would urge those congressmen to go watch the movie “Lincoln” again and see what kind of courage is needed to hold this union together.

On his biggest economic hurdle in the year ahead:

The biggest economic hurdle is, does the federal government screw things up? Does the eurozone fall apart? Does the Chinese economy continue to expand? Does South America continue? We are embedded in a world economy – flows of capital that come into California, flow out of California. So that’s the external context that in the short term determines most of what happens. In the longer term, our education, our safe cities, our innovation, our inclusiveness by which we train the millions of immigrants that live here that don’t have English as their first language, how we deal with the increasing stratification by income of the American Society – those are the long term challenges. But this year, Congress has got to get off the dime and make some tough, tough decisions that will not be easy for Democrats or Republicans.

On whether he still has any presidential ambitions:

No, I think I've had my fill of that. I've run more than most living people. And, my work here is in California. And I said I would run, do what I could to fix the budget -- which is well on its way -- and to give the spur to innovation, which is the key to our future.

To listen to the full interview with Governor Jerry Brown, click the audio player above.

About the author

Jeremy Hobson is host of Marketplace Morning Report, where he looks at business news from a global perspective to prepare listeners for the day ahead.
smilesvr's picture
smilesvr - Feb 10, 2013

A few of my friends here in Austin moved from Silicon Valley, and majority of them say the VCs here are all look, no bite. I think most their ideas are not that new anyway, heh, but consensus is that, even from people that do get picked up, investors here are risk-averse.

SoquelCreek's picture
SoquelCreek - Jan 17, 2013

Governor Brown said, "By the way, we get fifty percent of the venture capital investment -- the money that goes to the most innovative businesses."

True, but venture capital investment "plummeted" in 2012 according to the San Jose Mercury New, especially in the Governor's pet arena--clean tech. There were some high-profile failures in the segment, including Solyndra.

San Jose Mercury News
"Venture capital funding plummeted in 2012"
http://www.mercurynews.com/business/ci_22397697/venture-capital-funding-...

SoquelCreek's picture
SoquelCreek - Jan 17, 2013

It's funny when California Governor Brown suggests that maybe Texas isn't borrowing enough money when he says, "Maybe their debt is too low. Maybe they should be investing in the kinds of innovation and technology that will serve their citizens in the future." Texas should NOT be taking debt advice from California (or Illinois, or New York).

Let's look at the debt loads for both states. This chart comes directly from the California State Treasurer's office. I've added my notations.

CHART: Debt Loads of the Ten Most Populous States
http://3.bp.blogspot.com/-cilb3rC9MSo/UJ1S6rjYppI/AAAAAAAABS4/BxMOjetIvd...

California's debt load is FOUR TIMES HIGHER than Texas'.

California's debt load is about DOUBLE that of the average of the other 9 most-populous states. Texas' debt load is about HALF the average.

California has the lowest overall credit rating among states. Only Illinois, another financial basket case, has a lower rating from one credit agency. Texas has the highest possible rating from two of the three rating agencies and 2nd-to-highest from the other.

Texas has about a third lower unemployment. California's unemployment remains stubbornly mired as 3rd highest in the nation.
http://soquelbythecreek.blogspot.com/2012/12/california-november-2012-un...

For some reason, despite having only 12% of the nation's population, California has 33% of the nation's recipients of Temporary Assistance to Needy Families (TANF) benefits. Texas is at the opposite end of the spectrum.

CHART: TANF Recipients by State
http://1.bp.blogspot.com/-wAJ6vRfgi8Y/UHSqSOk1YnI/AAAAAAAABFo/Afl3omncAL...

It's no wonder that Governor Brown complains about the banks. California is a debtor state, deeply mired in self-inflicted, bad decisions. I understand that Governor Brown is a cheerleader for California and I support many of his proposed reforms, but facts are stubborn things. Bad policies in Sacramento made California a debt slave, not the banks.

Just for future reference, Governor Brown, it IS possible to make significant investments WITHOUT becoming overburdened by debt. I do it in my personal life. My company does it as well.

SOURCE REPORT: California State Treasurer's Office, "Debt Affordability Report," October 2012.
http://www.treasurer.ca.gov/publications/2012dar.pdf

SoquelCreek's picture
SoquelCreek - Jan 17, 2013

While I support many of Governor Brown's reforms, we strongly disagree on the merits of Proposition 30.

Indeed, Proposition 30 passed with a 55% majority. Of course, most of the burden for the tax hikes was places on the top 2-3% of California taxpayer who ALREADY paid 50% of all income taxes and over a quarter of the entire General Fund before Proposition 30.
http://soquelbythecreek.blogspot.com/2011/10/who-pays-their-fair-share-i...

Proposition 30 gives California the dubious distinction of having ...

1. The nation's highest state sales tax rate.
2. The nation's 1st, 2nd, 3rd, and 5th highest state marginal tax rates.

Never mind that Proposition 30 was funded by California's two biggest political spenders--the California Teachers Association (CTA) and the Service Employees International Union (SEIU). Both are big California public-sector unions who directly benefit from higher taxes. Both are also major funders of the California Democratic Party, who currently holds supermajorities in BOTH chambers of the California Legislature and who holds EVERY major statewide office.

Now that Governor Brown and the public-sector unions have their tax cut and their supermajorities, let's hope that they'll now join the REST of Californians in helping to responsibly solve the REAL issues confronting California.

Thank You Proposition 30 Supporters!
http://www.marketplace.org/topics/economy/governor-jerry-brown-balancing...

Davidjp511's picture
Davidjp511 - Jan 16, 2013

Jeremy:
The interview with Jerry Brown came across as an advertisement for the Governor. You failed to ask him one challenging question - just a bunch of softballs. How about this from TODAY's Wall Street Journal?

Last year's State Budget Crisis Task Force, co-led by former Federal Reserve Chairman Paul Volcker, estimated the state's long-term debt at no less than $370 billion. Governor - how do you plan the long term financial challenges faced by your state? This isn't over, right?

David