High on Spending, Light on Stimulus: Legislative Democrats Propose $100 Billion Borrowing Plan
This week in Washington, Democrats and Republicans are squabbling over the next economic stimulus package. Republicans have proposed a roughly $1 trillion plan, while Speaker Pelosi is pushing a $3 trillion plan. The partisan haggling and negotiations via shuttle diplomacy have already begun.
Upon returning from their summer recess, Sacramento Democrats are poised to get in on the act. Earlier this year, I wrote about how Democrats were planning a multi-billion-dollar “economic recovery plan.” Unlike Washington, Sacramento doesn’t have its own money printing press. State lawmakers can only spend big by borrowing more.
On Monday, Democratic Senators and Assembly Members announced that they “are prioritizing economic recovery in the final weeks of session” and unveiled a $100 billion “stimulus plan.”
Patting themselves on the back, Democratic lawmakers said that their plan “(builds) upon the successful collaboration that led to a balanced state budget addressing the $54 billion deficit.” A fact sheet says the plan produces “new revenues without raising taxes” and includes “innovative and fiscally sound solutions.”
Taxpayers shouldn’t take any solace from this boast, given that the budget enacted in June largely kicks tough spending decisions down the road, relies on billions from Washington California likely won’t receive, and relies on budget trigger cuts designed to increase pressure to raise taxes.
The Democratic plan can best be described as high on spending, light on stimulus.
Among the provisions of the Democrat plan are:
- Authorizing the Sate Treasurer “to issue future tax vouchers to generate billions of revenues” to pay for their spending wish list;
- Securitizing funds from the recently-enacted state gas tax increase, “existing CPUC revenue streams” and future Cap-and-Trade dollars;
- Borrowing from the federal government to pay for the significant increase in state unemployment insurance programs as a result of COVID-19;
- Extending unemployment insurance to undocumented and filling gaps from “shortfalls if the federal government does not extend the $600 per week payment”;
- “Protect(ing) renters from eviction and support struggling homeowners and landlords”; and
- Spending billions more to “combat climate change and create green infrastructure and jobs.”
In a statement applauding the plan’s release, Senate President Pro Tem Toni Atkins (D-San Diego) said that, “we must do all we can to help heal our economy, while ensuring that our solutions do not create further harm.”
Harm is what may come to hard-working Californians if anything resembling this plan becomes law.
While one can argue the merits of new state spending to “fight sea level rise” or “improve clean water delivery and recycling infrastructure,” these are hardly provisions that will stimulate an economy in deep recession.
Perhaps the provisions to “create a dedicated fund to incentivize light and heavy-duty, including passenger, clean vehicles, as well as expand electric vehicle charging infrastructure projects” may inspire a few Californians to buy expensive electric cars.
But will more electric car subsidies – the vast majority of which are claimed by households making more than $100,000 per year according to PRI’s landmark study “Costly Subsidies for the Rich” – really do anything to help Californians struggling to make ends meet or boost local economies?
The most troubling part of the Democratic plan is that it ignores California’s significant debt problem, including what PRI’s Wayne Winegarden estimates to be a near $1 trillion unfunded public employee pension obligation, to go on a big spending spree.
The 2020-21 state budget is already held together with scotch tape; tens of billions in new borrowing will make future budgets even tougher to balance.
Before the COVID-19 crisis, California was only starting to turn the corner from the days of the “wall of debt” of the 2000s that made budget balancing very difficult for more than a decade. If enacted, this plan would take us right back to those days. For example, some of the funds the Democratic plan would securitize, such as Cap and Trade dollars, have not materialized as budget writers hoped in past years.
The bottom line – the Democratic plan is not much of a stimulus; it’s really a $100 billion borrowing spree. At the end of the day, there won’t be much economic stimulus from the plan, but taxpayers will surely be saddled with billions in new taxes to pay for it.
Tim Anaya is the Pacific Research Institute’s senior director of communications and the Sacramento office.