Davis Gets Down to Business

Beginning his second term with a bath in red ink, Gov. Gray Davis was to the point Wednesday in promising in his State of the State address to balance the budget without tricks, gimmicks or evasions. It’s a promise he had to make because of the tactics he too often used to paper over last year’s huge budget deficit. He also promised “several structural reform proposals” in the budget he will submit Friday, a signal that he is serious about a long-needed overhaul of the state’s revenue system to dampen wild swings in tax collections.

Davis gave no details in his annual speech to the Legislature and none were expected. The possibilities being floated include new sales taxes on services and perhaps higher commercial property taxes to reduce dependence on volatile income and capital gains taxes. These are rational ideas, but given the climate of relations between Davis and the Legislature they will make for an Everest of a budget proposal. Legislators should get out their pitons.

Some calls were easy. As an economic stimulus, Davis said he would seek an extension of the manufacturers’ investment tax credit, which gives tax rebates on purchases of new equipment. Both Davis and Republicans have called for renewal of the credit, created in 1993 during the last downturn.

However, when business leaders come to Sacramento to plead for additional relief, they should be reminded how generous the state has been with tax cuts and credits in recent years. While income tax collections more than doubled over five boom years, to $44 billion, bank and corporation taxes rose by just $1 billion, to $7 billion.

Perhaps the most obviously useful specific proposal in Davis’ speech was the acceleration of voter-approved bond spending on everything from roads to schools to low- income housing. The quick effect is to create jobs, but the spending has an additional benefit -- it doesn’t count against the annual budget.

To his credit, Davis said he would look to lawmakers of both parties for their ideas. His respectful tone was a necessary change from four years ago, when he said the Legislature’s job was to “implement my vision.” All of the state’s leaders have to end increasingly rigid party divisions, dampen old political grudges and focus on a stronger, smarter, more efficient state government. Special interests already are clearing their throats to argue that they are exceptions.

Davis, accused with good reason of responding too easily to political donors, has to make a sharp reversal. His words about shared suffering are encouraging. If he can stick to the state’s best interests, the Legislature will have more incentive to follow him.