Posted on 01/12/2005 6:52:39 PM PST by NormsRevenge
SACRAMENTO (AP) - The nonpartisan Legislative Analyst warned Wednesday that while Gov. Arnold Schwarzenegger's $111.7 billion budget plan solves next year's problem, the state still faces big deficits in the future because spending remains out of balance with tax income.
But Analyst Elizabeth Hill also advised against Schwarzenegger's proposed long term solution to the problem - a constitutional amendment that would trigger accross-the-board cuts when revenues fail to meet spending obligations.
Hill said the measure, which Schwarzenegger wants to put before voters in a special election this year, would put even more spending "on cruise control" while undermining the Legislature's authority to set funding priorities.
Yet she defended the governor's call for fundamental reforms.
"Something has got to change," she said. "Our expenditure and revenue lines are not in balance and it is going to take significant actions to bring the state's fiscal house into order. We can't do the status quo, we have to make changes."
Overall, Hill found that Schwarzenegger largely delivered on his promise not to rely on accounting gimmicks or flimsy assumptions to paper over spending programs as recent budgets have - including Schwarzenegger's plan last year.
Schwarzenegger would close about half of the estimated $8.6 billion deficit next year through borrowing, the review found. Increased tax revenues from an improving economy and savings generated by limiting the growth in key programs would bridge the rest of the gap, Hill said.
But another big shortfall, at least $5 billion, would reappear in 2006-2007 because spending on schools, prisons, public health and welfare programs would grow faster than tax revenues.
Schwarzenegger has acknowledged the problem and has proposed the spending cap to prevent the state from running deficits in the future.
As proposed, cuts would be triggered across the board only if the Legislature and the governor cannot agree on a budget after the start of a new fiscal year, or at midyear when spending outstrips revenue forecasts.
H.D. Palmer, spokesman for the governor's Department of Finance, said the proposal would "act like a budget circuit breaker" to force the Legislature and the governor to work together.
"There's no disagreement between the administration and the legislative analyst that structural reform is needed," said Palmer.
Assemblyman John Laird, D-Santa Cruz, chairman of the Assembly budget committee, called Schwarzenegger's spending cap "unworkable."
Although schools, public health and welfare programs all suffer under the governor's plan, Hill noted that the administration would use more than $4 billion in loans to balance the budget next year.
The borrowing adds to $26 billion in loans the state has already taken out in recent years to cover operating expenses.
Paying back those loans is a big reason why the state continues to run in the red while tax revenue has been growing. In 2006-2007, debt service on the loans will cost the state $4 billion a year - more than what the state provides the University of California.
Still, Hill said that Schwarzenegger could have borrowed more from the $3.5 billion remaining of the $15 billion in bonds that voters approved last March to refinance the state's deficit.
Included in Schwarzenegger's budget is $760 million in bonds that would be sold in 2005-2006 to cover the state's pension obligations, even though an Orange County taxpayer group has filed suit to stop their sale. The bonds are similar to those ruled unconstitutional in 2003 by a Sacramento Superior Court judge.
If the courts again rule against the use of the pension bonds, the $760 million would be added to the deficit.
Some on Wall Street are also skeptical about the budget plan, noting that Schwarzenegger proposed similar cuts last year before reversing course and settling for more borrowing and one-time solutions that pushed the debt into the future.
"I think many of us in the investment community are a little disappointed that it doesn't resolve the underlining structural problem," said Jeffrey Thieman, vice president of municipal research at Charles Schwab & Co. He said investors will be watching closely to see how seriously the governor and legislative leaders take a spending cap that imposes real discipline.
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On the Net:
http://www.lao.ca.gov/main.aspx
Legislative Analyst
Seems that all but a few are willing to stop paying for the music lessons of autistic children, free phone service for the poor and elderly, subsidized tuition for Mexican nationals at UC and the other sacred cows of our California society.
Arnie I'm still waiting for BIG program CUTS.
"Assemblyman John Laird, D-Santa Cruz, chairman of the Assembly budget committee, called Schwarzenegger's spending cap "unworkable." "
Santa Cruz - has more lunatics per square foot than anywhere else in the US
With the bulk of them on State disability.
Progressive Nirvana....Dude! Lets go check out the sea lions on the docks. No way dude, those things reek. Besides, I gotta go fill out some forms at the Social Security Office. Gotcha. Hey' lets get some pizza & beer after your done. I'm there dude!
Nothin' like partying on some one else's (taxpayer) tab... eh?
Yep --- too many sacred cows. Plus the importation of poverty isn't too smart when your budget is in trouble already.
We can't even have an imperfect spending cap. And spending only 4% more than last year is considered by the spending lobby to be a "cut." So much for the future of fiscal reform in California.
Sound idea but who will do it?
Certainly not the legislature and certainly not the Austrian. The "will of the people" is not going to lead anywhere either since it has often been frustrated by the courts and at times is just a wacky as the elected governance.
Remember the midnight basketball monster (Prop 49) that is not constrained by law or finances. Remember altering the state constitution to borrow the day to day operational expenses of the state government. Don't forget the ever popular "stem cell" research boondoggle (Prop 71). These were all the "will of the people".
There are many interesting things in the LAO analysis, including the State taking over management of schools when they don't meet "accountability" provisions and the NCLB Act. Also, more bonds ($464 million) to pay for the settlement of a "flood-related" litigation (Paterno Lawsuit) And more....
http://www.lao.ca.gov/2005/budget_overview/2005-06_budget_overview.htm
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