California’s Budget Crisis Will Only Get Worse

While the nation’s attention was properly focused today on the horrific proposals from President Obama’s Catfood Commission, Legislative Analyst Mac Taylor reminded Californians of our own budget problems. The legislature and the new governor have a $25 billion deficit to close by June 30 (for both the 2010-11 and the 2011-12 budgets) while the state faces an ongoing structural revenue shortfall of $20 billion a year:

2010-11 Deficit. We assume that the state will be unable to secure around $3.5 billion of budgeted federal funding in 2010-11. This assumption is a major contributor to the $6 billion year-end deficit we project for 2010-11. We also project higher-than-budgeted costs in prisons and several other programs. In addition, our forecast assumes that passage of Proposition 22 will prevent the state from achieving about $800 million of budgeted solutions in 2010-11.

2011-12 Deficit. The temporary nature of most of the Legislature’s 2010 budget-balancing actions and the painfully slow economic recovery contribute to the $19 billion projected operating deficit in 2011-12. This gap is $2 billion less than we projected one year ago. Actions taken during the 2010-11 budget process to reduce Proposition 98 education spending are a major contributor to the decline.

Ongoing Annual Budget Problems of $20 Billion Persist

Similar to our forecast of one year ago, we project annual budget problems of about $20 billion each year through 2015-16. In 2012-13, when the state must repay its 2010 borrowing of local property tax revenues and the full effect of Propositions 22 and 26 hit the state’s bottom line, our forecast shows the operating deficit growing to $22.4 billion. Because our methodology generally assumes no cost-of-living adjustments, our projections probably understate the magnitude of the state’s fiscal problems during the forecast period.

In short, because the temporary tax increases agreed to in February 2009 and the federal stimulus of that same month expire or run their course in early 2011, the state is going to face a truly dire crisis next year. Another $25 billion in cuts – including billions in cuts to schools – would not only worsen the recession, but would cripple our state’s ability to ever again provide sustainable economic prosperity. We’d face a lost generation of young people whose education is gutted, a severe public health crisis for those who would lose state assistance, and long-term economic weakness due to those factors as well as crumbling infrastructure.

California faces an immediate choice in 2011: either we continue the destructive austerity policies of the last 3 years and cause widespread, long-lasting suffering; or we raise taxes on the rich and on corporations. Even Mac Taylor, himself a center-right figure, calls for long-term tax increases in his analysis, although he shies away from the kind of robust revenue collection from the rich that we really need.

Unfortunately, because voters did not approve the tax measures that were on the November 2010 ballot, it’s going to be even more difficult than usual to get to 2/3rds on the budget. Jerry Brown is already reverting to his 1970s austerity advocacy (which if you’ve been reading Calitics over the last year or two would come as no surprise).

Californians are going to have to choose what kind of future we want – one of widespread suffering and misery, or one of prosperity enabled by taking back our money from the rich and the big corporations and using it to rebuild the California Dream in the 21st century.

…Adding one other thing: Stories like this will undoubtedly fuel further cries that we need to cut public pensions. People throw around huge numbers, like $100 billion, for those pensions, but that’s NOT the cause of the annual structural revenue shortfall – the actual yearly cost of pension benefits is a much smaller fraction of that shortfall, and that spending, like all other government spending, helps keep the recession from getting worse. That won’t stop people hell-bent on cutting pensions, but facts are stupid things.

28 thoughts on “California’s Budget Crisis Will Only Get Worse”

  1. Robert, what do you make of people and businesses leaving the state?  What effect will long-term tax increases have on that?

  2. is that the UC is planning on reclassifying “fees” as “tuition,” so as to get rid of the massive fee remission covered in a decade of union agreements. for UC grad students that depend on TAship and readerships to pay their way through grad school, this will be devastating, especially when taken in light of the stratospheric hikes in “fees” in the past several years. students will either drop out or go broke borrowing money to cover a sudden $13,000 hike in costs.

    things could get very interesting on campuses very fast. if it passes, a lot of students will have nothing left to lose.  

  3. To quote the great Animal House, that’s the chance of getting anything like a big tax increase approved in a special election in this political climate.

    Get ready for cuts EVERYWHERE.

    We need to revisit the automoatic sunset of propositions idea.  

  4. Whatever you do DON’T SELL California’s infrastructure

    The legislature and Arnold the Barbarian are trying to sell state office buildings for short term cash and long term debt


    Live within your means

    My reps, Mark Leno and Tom Ammiano have not opposed this scam

    They won’t get my votes any more

    In 2012, we need an Oil Severance Tax to charge a fee for California petroleum

    The Oil companies have been getting a free ride  

  5. Brown’s got a lot of flack for his austerity talk; which I think was deserved in his previous incarnation but not necessarily now.

    I think pretty much everyone agrees that in this political environment, the sort of large tax increases needed to balance the budget are not viable–esp if you look at the senseless failure of prop 21 and success of 26–as well as failures of every other attempt we’ve made to deal with the structural tax problem.  At the same time,I don’t think we can reasonably hope to borrow our way out of the crisis until economic conditions and tax revenues improve.  And clearly, the constant insolvency of the government–leading to furloughs, IOUs, etc–only further increases voter disillusionment and decrease in confidence in the government.  The constant talk about the budget crisis also encourages more panic leading to flashy pennywise-poundfoolish cuts.  That is, further disorder does nothing but benefit the Republicans who would be perfectly happy with shutting down the state government altogether.

    So what’re we left to do?  I think Californians have spoken in terms of how much money they’re actually willing to contribute to public programs, whether it’s reasonable or not.  I’d say that we ought to decide what we absolutely do not want to cut and offer some of the rest as a compromise to republicans to raise taxes–but I also have no faith that there will be a significant number of republicans willing to engage in such a compromise.  So we’re left with cuts.  What else can we do that’s politically viable in the short-term?  I do agree that a certain amount of Brown’s austerity routine does seem to have its roots in the “nobility through suffering” concept of centrist pundits…but in the current political environment I don’t know what else he can do.  I’d rather have a Democratic governor cut programs than a Republican one.

  6. Mainly on stuff that requires earth movers, Steel and yep Concrete are What Brown may look at, He did that years ago and from what I’ve read, Caltrans doesn’t like saying how much they spend on stuff, I mean some projects can be put off a few years if there are No stimulus funds(I-405 comes to mind in LA[It may or may not have any Stimulus Funds, But I just don’t know], Carpool lanes through the Sepulveda Pass on the I-405) or if their not close to being finished. Then there’s the possibly expensive prison system($12 billion, Not cheap in 2009), Again as in Construction. I imagine there could be a few Multi-Billion Dollar Projects that could be delayed or canceled until later.

    Oh and the Sale of State Buildings should be halted, As that’s only a short term fix, But then short sighted people only interested in the profit motive would propose such a thing.

  7. It’s time to start punishing Republican districts who send anti-tax representatives to Sacramento.

    Start by rolling back the special deal that Lou Correa extorted for Orange County in exchange for his vote on the budget. Nobody needs his DINO support for anything any more.

    Start revising budgeting so it has more earmarks and less categorical money so that Republican districts can be short-changed.

    The party of no new taxes should become the party of no new projects, no new money, no new buildings.

    Audit their redevelopment agencies aggressively.

    And for right wing lobbyists and contributors, it’s time to shut the doors like Republicans in Washington did.

    When Scott Baugh is hired to lobby, or when a lobbyist comes from Orange County, there shouldn’t be enough hours in the day for any Democrat to spend a minute talking to them.

Comments are closed.