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How Jerry Brown Got Californians to Raise Their Taxes and Save Their State

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He’s brought the state back from the brink—and is poised to easily win re-election.

Not bad:

Headlines in recent years have been dominated by the austerity agendas of Republican governors that make Paul Ryan's schemes sound moderate. Now, however, as Pennsylvania's Tom Corbett, Wisconsin's Scott Walker, Florida's Rick Scott and others seek re-election, they are having a hard time defending policies that have delivered neither prosperity nor fiscal stability. Polls suggest that many GOP "stars" will have to fight to keep their jobs in November.

By contrast, there is Jerry Brown. Elected in the Republican-wave year of 2010, over a free-spending billionaire The New York Timessuggested was on her way to becoming "a natural contender for president," Brown assumed the governorship of what The Economistcalled "the ungovernable state." He took office facing a $25 billion deficit that had overwhelmed leaders of both parties. Vital programs were being cut, employees were being furloughed, and Mitt Romney was comparing California to austerity-ravaged Greece. Brown responded to the challenge by embracing fiscal responsibility while rejecting the reactionary economics of Romney and Ryan. Brown took an enormous risk in 2012: he bet that Californians were so tired of cuts and dysfunction that they would vote for a big tax increase. Brown bet right, securing overwhelming support for tax hikes on the rich—including a 29 percent increase for Californians with taxable income over $1 million—and a slight increase in the sales tax. That vote, along with solid Democratic majorities in the legislature, gave Brown flexibility. But he still took hits from all sides. Only as revenues began to fill state coffers did the tenor of the state debate shift, and with it the national impression of California and Jerry Brown.

By this past January, Brown was looking at a $4.2 billion budget surplus, and The Economist was announcing "California's comeback." By May, the numbers were pointing to an even greater surplus. As GOP stalwarts like New Jersey Governor Chris Christie whined about revenue shortfalls, Brown announced plans to increase spending on higher education by almost 10 percent and on K–12 education by 4.3 percent. He allocated $2.4 billion in additional funding to cover 1.4 million more people under the Medi-Cal insurance program for the poor. He proposed increased funding of the CalFresh food stamp program so that 134,000 additional households could join, and he directed $250 million in proceeds from greenhouse gas emission fees to a high-speed rail project that's part of a broad response to climate change. In addition, Brown's latest budget plan pays off debts run up by Republican Governor Arnold Schwarzenegger, reimburses local governments for deferred state mandates and directs more money toward paying down unfunded liabilities for the California State Teachers' Retirement System.

Toss in Brown's signing of legislation to raise the minimum wage to $10 an hour by 2016, his strong support for a California version of the Dream Act and immigrants' rights, and his focus on expanding local democracy and control, and you've got a governor who is blazing a distinct path—and who is doing so with considerable success. Standard & Poor's just upgraded California's economic outlook to "positive." Unemployment has dropped more than four points since Brown was elected.

That's a track record Brown could stack up against any governor, says Bill Press, who served in Brown's first administration in the 1970s, chaired the state Democratic Party and is now a popular liberal talk-radio host. "He's managing the largest state in the union; he took it over when it was flat on its back, and it is thriving now," Press adds. "He's done all this without declaring war on public employees, without mass layoffs of teachers, without any of the John Kasich/Scott Walker draconian talk that says the only way you can balance a budget is by making cuts and breaking the backs of public employees. He's proved that that's bullshit."

Yes, they had to raise taxes to keep from going bankrupt this year, but 2017 isn't that far off.

Let’s say you borrow $100 at 6 percent a year, due in 30 years. With a normal bond, you would pay coupons of $6 per year for 29 years and then $106 in the 30th year, for a total of $280. With a zero-coupon bond, however, you would pay nothing for the first 29 years and a single “balloon payment” of $574 would be due in the 30th year. That is, the convenience of paying no interest for the first 29 years means you end up paying more than twice as much because of compound interest.

The largest fund, California Public Employees' Retirement System, with nearly $300 billion in investments, extended its assumption of how long workers will need benefits by two years, Arnold noted.

"The policy response was very telling. They did not increase city contributions to the plan immediately; instead, they are phasing it in over a number of years starting in (I believe) 2017. In other words, we'll pay for it in the future."

California has mastered the art of borrowing now to pay the debt incurred by borrowing before.

So it shall be in 2017, too.

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