Posted on 01/05/2008 5:10:01 PM PST by NormsRevenge
SACRAMENTO – Gov. Arnold Schwarzenegger will declare a fiscal emergency this week and release his blueprint for closing an estimated $14 billion budget deficit, a gap so large that cuts to schools, health care and welfare programs appear inevitable.
It's an uncomfortable deja vu for the governor, who rode into office in 2003 facing a similarly sized shortfall and promising to fix the state's budget roller coaster once and for all.
California's reliance on volatile sources of tax revenue, as well as voter-approved ballot measures that dictate state spending, have helped create the problem. But so have some decisions that Schwarzenegger has made along the way.
Economists say that despite Schwarzenegger's pledge of fiscal prudence, he has just barely kept the state's budget balanced. He has done little, they say, to rein in government growth and insulate the state from the ups and downs of the markets the way most other states have.
Instead, Schwarzenegger has allowed spending to increase 40 percent under his watch and has backed tens of billions more in borrowing, mostly for construction projects, that will leave the state paying down debt for decades to come.
California's fragile fiscal state has been evident in how far it has fallen in one year. Twelve months ago, Schwarzenegger claimed to have accomplished the seminal task voters charged him with. He said he had wiped out the state's chronic deficit, which was projected to peak at $16.5 billion the year he took office.
“Our net operating deficit has been reduced to zero,” Schwarzenegger proclaimed last January.
Even before Schwarzenegger signed the current year's budget last summer, however, the gap had reappeared and the expected shortfall for the budget year beginning this July had grown to $6 billion.
By late last year, as the scope of the housing market bust came into focus, the state's independent legislative analyst estimated the shortfall had swelled to $10 billion over the next 18 months.
Later this week, Schwarzenegger will announce the estimated shortfall has ballooned to more than $14 billion – roughly 10 percent of the this year's total spending plan.
“There was a lot of talk (by the governor) of cutting up the state's credit card, and it looked like a one-time fix that was going to work,” said Ryan Ratcliff, economist with the Anderson Forecast at the University of California, Los Angeles, referring to bonds and a borrowing limit the governor persuaded voters to approve in 2004.
“But it basically assumed the economy was going to keep growing like gangbusters, and that was going to cover the sins of the past.”
Ratcliff said the governor's budget reforms to date have largely been gimmicks.
“They made it look like we addressed the problem, but it was really smoke and mirrors,” he said. “Most of the underlying issues still exist.”
H.D. Palmer, spokesman for Schwarzenegger's Department of Finance, disputed that account. He said the governor has made real improvements that will force California to deal with its latest budget problems head-on.
“He has taken away a lot of the tools that have been used as balancing ploys in the past,” Palmer said.
For example, he said the state is no longer allowed to borrow money indefinitely from transportation accounts and cannot shift tax money away from local governments to cover its own shortfall.
Still, the state's biggest fiscal impediments remain.
As it has under previous administrations, California continues to suffer from boom-or-bust revenue cycles and voter-approved ballot measures that have taken much of the budgeting authority out of the hands of lawmakers.
The state relies heavily on taxes on its richest residents, which can swing wildly from year to year with rising and falling capital gains and stock option revenue.
California's history of governing through the ballot box also has tied lawmakers' hands when times get tight. Spending formulas mandated by voter-approved ballot measures dictate how the governor and Legislature allocate nearly three-fourths of California's tax revenue.
The Legislature's requirement to pass its annual spending plan with a two-thirds majority also has led to a situation in which lawmakers tend to solve fiscal crises by borrowing.
The Democratic majority refuses to cut programs, while Republicans oppose new taxes. By default, borrowing becomes the least objectionable option.
Schwarzenegger has cited such structural problems in calling for more sweeping budget reforms.
In 2005, he pushed a ballot measure he dubbed the “Live Within Our Means Act,” which voters rejected along with other measures opposed by unions. The measure would have capped annual state spending growth.
Mike Genest, the governor's finance director, said the latest budget crisis offers a new chance for reform.
“Other states have a process to automatically reduce spending when revenue lags. That is exactly what California needs. The governor has tried budget reform twice before. The Legislature and the people weren't ready to go along,” Genest said last week in the governor's weekly radio address.
Schwarzenegger's budgets, however, haven't always been about reforms or spending cuts.
In his first budget in 2004, Schwarzenegger promised to force California to spend only what it took in. He then proposed a $99 billion plan that relied on a mix of the same kind of borrowing and one-time solutions that led him to criticize former Gov. Gray Davis.
The state still owes $8 billion on bonds Schwarzenegger convinced voters to approve to balance that year's budget.
In 2006, facing an uncertain re-election, Schwarzenegger proposed using a $9.2 billion tax windfall to pay for additional spending on schools, roads and health care. The spending exacerbated California's current deficit.
“We've taken on new obligations – and not to say they're not needed – but new obligations without a way to pay for them, and the end result is an unbalanced budget,” said Jean Ross, executive director of the California Budget Project, which advocates for funding for the poor. “I think (Schwarzenegger) came in and realized what looks like it ought to be easy, is actually much harder.”
Instead, Schwarzenegger has allowed spending to increase 40 percent under his watch and has backed tens of billions more in borrowing, mostly for construction projects, that will leave the state paying down debt for decades to come.
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He and "we" rolled the dice.
snake eyes.
And if its bad now with the revenues high from good employment.... its really going to nosedive if the recession really does start soon.
“The Legislature’s requirement to pass its annual spending plan with a two-thirds majority also has led to a situation in which lawmakers tend to solve fiscal crises by borrowing.”
BS
The issue is SPENDING. California collects plenty of revenue (we’re about #12 out of the 50 states). Cut unimportant programs. Cut state employee benefits. Leave road and other maintenance. Repeal laws which require state regulators to enforce them (e.g. CA DOJ enforcement of our unconstitutional gun enactments [they can’t properly be described as laws]). It might also be helpful for the feds to quit raiding our state for revenue. We pay in a buck and get .89 back from them. New Mexico on the other hand gets $1.40 back.
If the Gubernator doesn’t start standing up to the Democrats in the state legislature, the state’s policies will terminate the local economy.
I know you aren't a liberal. But I chuckle when libs make this argument to me as an excuse for California's irresponsibility. The reality is, if you have a progressive income tax, wealthier states will always pay more in taxes than they get back. That's what a progressive income tax does.
Libs have to choose. Flat tax or no excuse for California's fiscal irresponsibility. Can't have it both ways.
Shame on California for electing this carnival charlatan.
Raid your state?? Bawhahaha!
National Taxes are just that.
You don’t GET taxes back in kind.
bump
Is there any possibility of getting Arnold recalled?
“Is there any possibility of getting Arnold recalled?”
We recalled one incompetent liberal governor.
No reason why we can’t recall another.
Maybe we can get it RIGHT this time! LOL
I love Mark Levin’s name for RINOld...he calls him “JERKinator”
FU. It’s a fact that we pay more than our share. So do several other states.
Stop making excuses for theft.
Yes, lets recall AAAAhhhnald, and elect Tom McClintock like we should have the last time...... a real conservative!!!
Stop making excuses for the most fiscally irresponsible entity in the world. If California's legislature would stop spending money like coked-up Saudi princes in a whorehouse, it wouldn't be an issue. At least Arab Princes have the resources to support their habit.
I wonder if the Kalifornicate Legislature or SchwarzenKennedy has thought about cutting off ALL TAX DOLLARS TO ILLEGAL IMMIGRANTS?
Or perhaps even a LAYOFF of State “employees”...a reduction in perks to State Legislators.....stop building schools that mimic the Taj Mahal......stop paying University faculty twice what they could earn in the private sector with the same skills.....revise the ENTIRE state pension system — bringing it into compliance with what those of us who pay their salaries must manage with, their own 401Ks.....etc, etc,
Whenever a group of wolves (legislators) can decide when to attack the sheep (taxpayers) — the sheep are not safe.
But of course, FReepers(who we never hear from anymore) and others who voted not once but TWICE for this liberal would probably not support another recall; so we CA conservatives are going to have to sit back and watch our Golden State turn into a Banana Republic. And just like GWB, RINOld, because of his incompetence and refusal to govern as a conservative, will "poison the election well" so badly that it will be very difficult to convince Independents to vote for and thereby elect another "R" anytime soon.
Take heed, America. With more than HALF of Americans receiving some type of government assistance, this is EXACTLY what is happening to America! Who says Communism is dead. Socialism/Communism is alive and growing in America!
"Liberalism is just Communism sold by the drink."
P.J.O'Rourke
Semper Fi,
Kelly
I keep hearing this emphasis on the legislture. .. It's misplaced.
California's problem is its REPUBLICAN governor who proposes and approves the spending escalations. Many in the legislature, including a few Democrats, haved opposed all or parts of the governor's wild, spending sprees for the past 4 years.
The issue is spending.
The California State legislature never has as much money as they want for all of their feel-good socialist programs. We could double the budget and they would still have wish-lists unfilled. That is the problem.
So when windfall revenue is generated from either stock market taxes or real estate taxes, the State spends the money faster than it comes in and is therefore in a constant state of fiscal crisis.
The State is doomed. As long as liberals run the state, it is just flat doomed. Taxpayer will continue to flee the state for lower taxed venues.
Schwarzenegger is not the problem. The problem has always been and always will be the spendthrift Legislature and it is unlikely any governor can control them. Arnold tried to pass a spending cap with the stupid electorate voted it down. The moron electorate wants to borrow and spend. They want a free lunch.
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