1981 is a year of testing. Testing our capacity of live within a stringent budget. More than ever, we need the cooperation of both parties to equitably balance the budget, combat crime, and invest in our future.
From an historic vantage point, we have reached a watershed. For the first time since World War II, state government spending will clearly not keep pace with inflation. This will challenge us to join together to take care of those most in need, maintain a reasonable level of services, and yet also invest in some new initiatives.
It would be unwise to stifle all new programs because of this period of fiscal stress. It is utterly essential to continue new investments in our economy so that renewed prosperity will allow us to meet future needs. The economic pie will only grow if we encourage our most vigorous enterprises in key areas such as: agriculture, electronics, energy and conservation, education and research, job training, and risk-taking businesses.
The budget has only enough money for a 0.2% increase in general fund expenditures, which because of inflation translates into almost a 10% cut in purchasing power.
Never since World War II has a budget been so tight. The reason is simple. For the last three years you have dramatically responded to the desire of our citizens for tax relief.
** You have voted to faithfully carry out Proposition 13.
** You have eliminated the business inventory tax.
** You have eliminated the inheritance tax on surviving spouses and reduced it for other heirs.
** You have provided generous tax credits to senior citizens, renters, and those who make solar or conservation investments.
** You have cut the disability tax rate for all workers.
** Finally, you have enacted an outgoing income tax reduction that this year will save California taxpayers 2.5 billion dollars.
All told, these tax cuts will have returned about 40 billion dollars to California taxpayers by the end of the budget year.
California, once near the top of the states in taxes is now in the middle.
Given this unprecedented commitment to tax relief, and the sharp economic recession, it is simply not possible to fund state and local governments at their historic rate. From 1951-1981, the state general fund each year increased on the average 8% faster than the consumer price index. By contrast, this year state general fund spending increases will fall 10% below the rate of inflation. That means painful choices that we have to make together. In this regard, I pledge my closest cooperation. I have made some preliminary judgments. You are going to review them and by July, with some luck and enough goodwill, we will jointly fashion a final spending plan that will make us all proud.
There is one issue that concerns our citizens more than any other. You know I am referring to crime and the fear people have today that they are not safe in their homes, their neighborhoods, or even on the way to work.
In this year's budget, I am proposing a $120 million increase to assist in the apprehension, prosecution, and incarceration of criminals. But this is only the beginning in the battle against crime! Our main task must be to identify those steps that must be taken to reduce violence in our communities and restore a sense of personal security to all citizens. I pledge to work with you to fashion new measures that will help local law enforcement and effectively deter the rise in crime.
It will come as no surprise that B. T. Collins has inserted into the budget a generous increase for the California Conservation Corps. The Corps members are doing an outstanding job. I only wish we could enroll thousands more and spread that ethic of hard work, personal responsibility, and public service to every young person in the state.
Although it will be unusual for such a tight budget, I believe it is crucial that we set aside some money for new initiatives that will assure our economic strength. In other places, a process of decline has set in because people lacked the capacity to renew the economic base and build for the longer term future. It is so easy to become overwhelmed by the problems of the moment and shrink back from investing enough current dollars to insure continued prosperity.
In this regard, we should recognize that a key area of economic growth for California is the electronics industry. Our own citizens are in the forefront of the information revolution and are leaders in the manufacture of products that keep our economy competitive and productive.
But we can't be complacent. Other states are trying to persuade many of our high technology companies to expand outside of California and the industries themselves face aggressive competition from foreign imports. I see that as a clear and present challenge. For this reason, I recommend that we establish a microelectronic research center at the University of California to spur additional research and training. This will help California maintain its competitive edge and its leadership in technological innovation.
I will also seek support for new state efforts to encourage industrial innovation of all types, particularly for small and medium size businesses.
I also intend to work with private and public pension fund trustees to explore new ways to channel badly needed capital into the economy of California. Maintaining the strictest standards of prudence still allows us to support a more intelligent use of our pension funds to help stimulate housing and other investments essential to the continued health of the state's economy.
Investing for prosperity requires that we pay special attention to our natural resource base. Throughout history people have become permanently poor because earlier generations did not expand the productivity of such basic resources as timber, soils, agriculture and fisheries. The Energy Resources Fund which you established last year will proviedeThe Energy and Resources Fund which you established last year will provide sound investments to reduce our future imports of timber, keep our soils fertile, and replenish our depleted fisheries. From the same source, I will also propose the creation of an Agricultural Investment Program to promote research and assure the long-term productivity of California agriculture.
In short, in the coming year I seek to work with you to solve our immediate problems but also to lay the foundation for long-term well-being.
The pressure will be great:
All this is not easy. But I am convinced we can meet today's issues and build for the future at the same time. With a spirit of cooperation, 1981 will test us and not find us wanting.