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.