Advancing a Free Society

Big Blue State...Big Red Numbers

Monday, May 14, 2012

Maybe someone forgot to carry the number . . .

Or, the state’s Department of Finance misplaced the decimal point in doing its budget math . . .

Or . . .

California’s economy really is this wretched, its governor wasn’t terribly honest with the revenue projections he offered back in January, and the feds and the courts are doing their darnedest to complicate matters.

Such is the very sorry state of the State of California, now that Gov. Jerry Brown has unveiled the state budget’s “May Revise” – one featuring a deficit sinkhole that’s spread from $9 billion to a walloping $16 billion in just four months’ time, plus the threat of additional spending cuts (here’s a pdf of the gory details).

Why the $7 billion accounting error?

Three culprits: (a) Brown over-estimated tax revenues by $4.3 billion; (b) the federal government and courts blocked $1.7 billion in cuts California wanted to make; (c) the state’s on the hook to spend more on its schools thanks to a messy voter-approved law.

Now that Brown’s updated the state’s finances, look for three California storylines in the weeks and months ahead:

1)     Democrat-on-Democrat Violence. In Sacramento, it’s no so much what programs Gov. Brown would cut as it is what legislative Democrats are willing to accept. And a couple of Brown’s ideas are really doozies, from the left’s perspective: he’d have state employees work one less day a week (total of 38 hours, down from 40) and accept a 5% salary cut. That’s striking at the heart of a union that bankrolls Democratic candidacies (unpaid furloughs being a major bone of contention between state workers and then-Gov. Arnold Schwarzenegger). The governor also would take away another $38 million from California’s UC system, at a time when UC officials say they need an extra $125 million to avoid 6% tuition hikes. What do disgruntled state workers and students have in common? Protests at the State Capitol, like this one from back in March.

2)   Good Golly, Miss Molly. Here’s one way to look at Gov. Brown’s messaging from now through November: every dollar, he mentions, in threatened K-12 education cuts is a dollar’s worth of advertising for Molly Munger’s tax initiative. Thus the emphasis, in Monday’s announcement, on budgetary hits non-el/hi. While Brown’s budget would reduce spending by $8.3 billion, K-12 spending would actually increase by 16% should voters approve Brown’s competing tax hike. With three tax ballot measures likely coming Californians’ way in November – Brown’s, Munger’s and a third ballot prop that would raise California’s corporate tax to fund the general budget and clean-energy projects – the governor has to walk the fine line of selling Californians on a concept they don’t like, while sounding like the most rational/reasonable person in the room.

3)  The Neverending Story. Both the title of Michael Ende’s fantasy opus (plus several film and television adaptations) – and a tale of real-life woe in Sacramento. If you have some free time on your hands, try this Google search: “California budget crisis”. As you start sifting through the 44 million returns, you’ll find the following nuggets: a $12 billion surplus that morphed into a $38 billion deficit, a decade ago; state debt that nearly tripled under Arnold Schwarzenegger’s watch (that was November 2003 to January 2011); a newly sworn-in Jerry Brown promising to get down to the brass tacks of solving a $28 billion deficit (“no smoke and mirrors . . . no empty promises”); the many problems facing California’s uncertain financial future – shaky leadership, yo-yoing revenue; meddling federal and court dicta – neatly summed up in this Economist piece from nine years ago. In other words, it’s an old story. Good luck trying to sell Californians on the concept of a looming fiscal Armageddon, in a state stuck in a deficit-rich Groundhog’s Day.