The AP has gotten a hold of the governor’s May Revise speech and therefore the major budget proposals that are to be unveiled tomorrow. The key elements are described below and over the flip I provide some analysis of each proposal.
- Arnold will float bonds using the state lottery as security. $15 billion over 3 years will be raised but $10 billion goes into “rainy day fund”
- If that fails, 1% sales tax hike to last no more than 3 years
- Prop 98 suspension abandoned; instead COLA will not be paid
- State parks closures abandoned; instead fees to rise $1 to $2
- $6 billion still left to cut or balance out somehow.”
Overall thoughts: Here we go again. Arnold Schwarzenegger came to office in the recall of Gray Davis in 2003 promising to solve our state’s budget problems once and for all. Instead he immediately blew a $6 billion hole in the budget with the Vehicle License Fee cut and then borrowed to close the rest of the gap – costing the state around $3 billion in annual debt service.
Now that Arnold’s solution has predictably failed, he is predictably offering more of the same. Borrowing against the lottery is a problematic concept for many reasons, the main one being it avoids the core issues of our budget. It’s yet another one-time fix that does nothing to solve the structural revenue shortfall that has plagued our state for 30 years.
It is significant that Arnold seems to be backing away from his most significant cuts – especially the K-12 cuts. Obviously the details released tomorrow will be key, and we should fully expect higher ed to take another crippling blow. But this does indicate that the activism many of us have launched against the primary schools cuts has had an impact.
And of course, there’s still $6 billion left over – $6 billion that the Yacht Party will insist come in the form of destructive cuts that damage the economy, $6 billion that Democrats will – we hope – insist come in the form of wise, long-term revenue solutions.
Finally, Arnold seems to be gambling that the economy will make a quick recovery and that the current woes are just a dip and not the opening stages of a deeper recession. That, I think, is a major and probably reckless gamble to make.
Thoughts on the specific items are below.
Borrowing against the state lottery: this seems to be at the core of Arnold’s new plan. As described by the AP:
The governor will propose raising $15 billion over the next three years by selling bonds based on anticipated lottery revenue. He will use about $5.1 billion of that for the 2008-09 fiscal year to help erase the deficit, administration officials told The Associated Press on Tuesday.
The other $10 billion would be left in a reserve fund the governor wants to create as part of a budget-reform proposal. It would be intended to ease the effect of year-to-year revenue fluctuations.
The revenue proposal – which administration officials refer to as “securitizing” the lottery – would require voter approval because the lottery was established through the initiative process.
As I explained above this is a clever way to avoid the basic issues here – ride it out another year or two and dump the problem onto the 2010 gubernatorial race. Borrowing the lottery funds is designed to ease the need for the most destructive cuts without raising taxes, and the rainy day fund seems to be a clear sweetener for Republicans to along with this scheme.
Schools: The AP describes the education budgeting as follows:
The budget the governor will release Wednesday backs away from some of the less politically popular proposals in the $141 billion budget plan he released in January, including a proposal to suspend the minimum school-funding guarantee, Proposition 98.
Instead, the budget proposal will include a $1.8 billion increase in funding to schools over 2007-08 levels. Schools still will lose about $4 billion in anticipated revenue because Schwarzenegger’s plan would not include program cost-of-living increases.
This does not necessarily take the 20,000 pink-slipped teachers off the hook. Losing the $4 billion in anticipated COLA revenue will still cause problems for many school districts – and as I indicated above, higher ed is likely to face major cuts anyway even if K-12 is somehow spared the worst. In any case, teachers are being forced to balance the budget on their backs.
Here again Arnold has chosen quick fixes over long-term solutions. California’s educational system was once the envy of the nation. 30 years of tax cuts have reduced CA to nearly the level of Mississippi, and while the January proposals were bad enough, major reinvestment in all levels of public schools are needed for California to ease widening inequality, provide prosperity and jobs, and thrive in the 21st century.
The devil is in the details here, so until we see those, schools don’t seem out of the woods just yet.
Parks: The proposed park closures were always a rather idiotic idea. Although parks should be free of charge, as California’s natural patrimony, it makes far more sense to raise fees than to close parks. Outright closures would have blown an even bigger hole in the parks budget, so this is clearly the more intelligent plan.
Remaining cuts: Even with Arnold’s lottery borrowing scheme there will be $6 billion left in the deficit. Obviously a restoration of the VLF would close that for good, but expect bitter fights over that last $6 billion between Democrats who will want to provide some sensible ways to close the gap with new revenues, and Republicans – Arnold included – who will prefer destructive cuts to sensible tax solutions.
Overall the May Revise doesn’t appear to be the cataclysm that some expected, but even if Arnold’s lottery plan is embraced – which is far from certain – the basic issues remain, and we’re likely to be debating this well into the fall.