EDITORIAL

For a moment there, listening to Gov. Arnold Schwarzenegger's State of the State speech, you could imagine it was 1958, and Democrat Pat Brown was running for governor on a program of public works projects and heavy investment in the state's infrastructure.

But there's a big, big difference between then and now, and somehow, it's been missing from most of the news media coverage, political analysis, and legislative debate over the governor's grand proposals. In 1958, California politicians weren't afraid to raise taxes to pay for their ambitious projects.

In 2006, it's stunning Schwarzenegger could announce that he plans to spend almost $70 billion in state bond money on highways, schools, colleges, flood protection, and (of course) prisons – without raising a dollar of new revenue. That's utterly impossible, almost farcical: Bond acts that size would cost the state somewhere in the neighborhood of $5 billion a year just for interest payments. Where, exactly is that money going to come from?

"I don't know what kind of dream world we're living in here," Lenny Goldberg, who runs the California Tax Reform Association, told us.

Assemblymember Mark Leno of San Francisco added, "There is absolutely no way to pay for this."

Finding revenue isn't really all that difficult. The CTRA has identified $17 billion a year the state could collect with a few major tax-policy changes like taxing services as well as goods, raising the income tax on the very wealthy, and plugging corporate tax loopholes. But for funding big infrastructure bonds like this, the most obvious answer, Goldberg says, is changing the way the state assesses commercial property.

"The idea of this sort of public investment [in projects like highways] is that it reaps dividends by making the nearby land more valuable. But right now, the state has no way to recoup any of that; it all goes to the private property owner."

So the commercial real estate interests that benefit from big state spending pay nothing in return – and down the road, the rest of us get stuck with a huge bill and no way to pay it. That's what the Schwarzenegger plan amounts to.

There are other big problems with the governor's plan, starting with the fact that his notion of infrastructure investment is about half a century out-of-date. What California needs now is mass transit, not highways. But Schwarzenegger mentioned highways at least seven times during his speech, and that's where the bulk of the transportation money would go. The governor even suggested building more highways would reduce congestion and thus air pollution – a ridiculous concept that's been proven wrong so many times that almost nobody with any sense believes it anymore. And he spoke of providing room for 83,000 new prisoners – which would virtually guarantee that California would continue to lead the nation in locking up an inordinate percentage of its population.

But the biggest issue is the money – and the time to talk about that is now. It's appalling that the Democratic leadership in the legislature is ducking the issue. Californians have been told for far too many years that they can have good government, adequate services, and quality education without having to pay for it – and until someone blows the whistle on that gigantic lie, the state will continue to wallow on the edge of fiscal ruin.

www.caltaxreform.org