The legislative budget analyst's projection, to be released Wednesday, threatens to send Sacramento back into gridlock and force more broad cuts to state programs.
Gov. Arnold Schwarzenegger will present his next proposed budget in January. Republicans vow to block new taxes; Democrats say they are through with cuts. (Eric Paul Zamora / Associated Press)
Chart: Projected deficit of $21 billion
 LAO REPORT 2010-11 Budget California's FISCAL OUTLOOK |
By Shane Goldmacher reporting from Sacramento | LA Times
November 18, 2009 - Less than four months after California leaders stitched together a patchwork budget, a projected deficit of nearly $21 billion already looms over Sacramento, according to a report to be released today by the chief budget analyst.
The new figure -- the nonpartisan analyst's first projection for the coming budget -- threatens to send Sacramento back into budgetary gridlock and force more across-the-board cuts in state programs.
The grim forecast, described by people who were briefed on the report by Legislative Analyst Mac Taylor, comes courtesy of California's recession-wracked economy, unrealistic budgeting assumptions, spending cuts tied up in the courts and disappearing federal stimulus funds.
"Economic recovery will not take away the very severe budget problems for this year, next year and the year after," said Steve Levy, director of the Center for Continuing Study of the California Economy.
In fact, after two years of precipitous revenue declines, the new report projects relatively stable tax collections for the state, said those who were briefed. But that won't stop the deficit from climbing to nearly $21 billion.
Gov. Arnold Schwarzenegger, who will present his next proposed budget to Californians in January as he begins his last year in office, started sounding the alarm last week.
"I think that there will be across-the-board cuts again," he said at a San Jose news conference.
The task in 2010 could be even harder than it was this year, when record deficits and cash shortfalls drove California to issue IOUs for only the second time since the Great Depression. Lawmakers have already cut billions from education, healthcare and social services while temporarily hiking income, sales and vehicle taxes.
"I can't think of any good solutions," said Assemblywoman Noreen Evans (D-Santa Rosa), who chairs the lower house budget committee.
The current budget year accounts for $6.3 billion of the deficit, the nonpartisan analyst projects. Prisons spending will outstrip what has been budgeted by more than $1 billion, and K-12 schools were underpaid by $1 billion under the complex formula that governs education funding, the report says.
Another $14.4 billion of the deficit is for the fiscal year that begins next summer, say those briefed on the report. The governor's next budget will have to account for both years.
The state Department of Finance in August predicted a shortfall of at least $7.4 billion for fiscal 2010-11. But California's financial picture has darkened considerably since then, largely because the shaky summer budget pact relied heavily on borrowing, fiscal tricks and overly optimistic projections.
It assumed receipts of nearly $1 billion from the federal government for Medi-Cal that the analyst questions. Another $1 billion was assumed from the sale of a quasi-public workers' compensation agency that has stalled.
Next year's budget fight is expected to be as contentious as this year's. Republicans vow to block new taxes; Democrats say they are through with program cuts.
Powerful interest groups are already girding for battle.
"There is no more to cut from our schools," California Teachers Assn. President David Sanchez said Tuesday. "There is no more meat on this bone. . . . The next step is amputation."
In higher education, Chancellor Charles Reed of the Cal State University system said this month that he will plead for $884 million in funds from Sacramento next year. The University of California will ask for $913 million more for its 10-campus system, President Mark Yudof has said.
"If ever there was a time to fight for and invest in the institution best positioned to power this state from recession, now is that time," Yudof said in a statement. UC students, meanwhile, are coping with a staggering 32% fee hike.
California's finances have been so bad that the governor's finance director, Mike Genest, told a budget forum in Washington last week that back in February he had combed through the U.S. Constitution to research whether California could legally declare bankruptcy -- or revert to some kind of territorial status. (Neither was realistic, he determined.)
The state's financial problems predate the current recession and the gimmicks used to paper over the deficit, experts say. Year in and year out, state government spends roughly $10 billion more than it collects in tax revenue.
Political divisions in Sacramento, where support from both parties is necessary to pass a budget, have repeatedly stymied efforts to plug that hole. The task probably won't be easier next year as various interests try to muscle one another to the sidelines.
Some have even drafted potential ballot measures to aid themselves in the budget fight and are preparing to collect signatures in an effort to place the initiatives before voters.
Among the ideas: raising tobacco taxes, curbing public pensions, repealing corporate tax breaks passed thisyear and last, splitting the tax rules for commercial and residential property, reducing the legislative votes needed to pass a budget and strengthening the firewall around local government and transportation money.
"There's a lot of people putting chess pieces on the board right now," said Jon Coupal, president of the anti-tax Howard Jarvis Taxpayers Assn. "The question is which of those chess pieces will be moving."
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California's budget woes will continue for years, report says
Tax receipts have leveled off, but revenue won't bounce back until the 2014-15 budget year, according to the chief budget analyst. Near term, the state faces a nearly $21-billion deficit.
By Shane GoldmacherReporting from Sacramento | LA Times
November 19, 2009 - Despite an economy on the mend, California's budget woes will drag deep into the next decade, according to a report released Wednesday by the state's chief budget analyst.
Tax collections have leveled off after one of the most precipitous drops since the Great Depression. But revenue is not expected to fully bounce back until the 2014-15 budget year.
State government faces a nearly $21-billion deficit over the next year and half, according to the report by nonpartisan Legislative Analyst Mac Taylor. Sacramento will be forced to muddle along, he says, unable to reverse the deep cuts that officials have made to K-12, universities, healthcare and social services.
A major reason the recovery will take so long, say many experts, is California's place at the epicenter of the real estate slide and the resulting foreclosure wave. Moreover, "the mess in Sacramento is going to affect the California economy," said Jerry Nickelsburg, senior economist at UCLA Anderson Forecast, "and not in a good way."
Californians must get used to a state that offers fewer services -- and has higher taxes -- than before the real estate boom, Taylor's report suggests. But it remains to be seen how much residents will accept.
On Wednesday, at least 14 people were arrested in a raucous protest as a University of California regents panel approved a 32% student fee hike. A day earlier, the president of the California Teachers Assn. had likened further K-12 cuts to "amputation."
"We cannot afford now what we're spending," said Taylor, whom both Democrats and Republicans look to for fiscal advice. More cuts and more taxes will be necessary to balance the books, he said, calling all the options "painful choices."
Budget shortfalls have reemerged less than four months after lawmakers and Gov. Arnold Schwarzenegger struck a summer deal, which contained accounting gimmicks and rosy assumptions that have failed to pan out.
"The thing about smoke and mirrors is they are usually short-term solutions, and they come back to bite you the next year," said John Ellwood, a professor of public policy at UC Berkeley.
Schwarzenegger, who last week predicted more across-the-board budget cuts, must unveil his plan to address the projected $20.7-billion deficit in January. Taylor urged that officials begin tackling the red ink "as soon as possible."
The deficit is expected to be worse in the years beyond 2011, as temporary taxes expire and raids on local government funds must be repaid by Sacramento. Taylor projected a $21.3-billion deficit in fiscal 2011-12 and a $23-billion shortfall in fiscal 2012-13.
Even those numbers could be conservative. They assume no raises for state workers and no cost-of-living adjustments for government programs. They also assume that California will win all pending court cases in which billions of dollars in service cuts are being challenged.
Republican lawmakers have vowed to block new taxes, which many Democrats advocate to balance California's books. Assembly GOP leader Sam Blakeslee (R-San Luis Obispo) issued a statement Wednesday calling on the Democratic-dominated Legislature to instead change the state's "punitive regulatory and tax climate that is driving jobs away."
The bleak numbers have also spurred calls to Washington, D.C., for help, as much of the federal stimulus package that somewhat blunted this year's state cuts is set to expire. Jean Ross, executive director of the California Budget Project, which advocates for low-income residents, said the state "needs a second round of federal aid as we face record unemployment and continuing economic weakness."
That may be a hard sell in the nation's capital, where conservatives have questioned the success of the first package.
"California clearly has mismanaged its fiscal house," Nickelsburg said. "It seems to me it would be very difficult to convince states that have not mismanaged their own fiscal house to come to the aid of California."
