Opinion

Tuesday, Jul. 14, 2009

Dan Walters: Two data sets neatly frame state's budget crisis

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Two sets of data, one from the governor's budget agency and the other from the state controller, neatly frame the budget deficit that top political officeholders are trying – and so far failing – to close.

Gov. Arnold Schwarzenegger's proposals include a chart labeled "workload budget," which is essentially everything the 2009-10 general fund budget would be covering – the sum of years of policymaking by voters and politicians – if the state could pay for it.

That would include about 8 million students in K-12 schools and colleges, more than a quarter-million prison inmates and parolees, more than a million Californians on welfare rolls, health care for the poor, salaries and raises for 300,000-plus state workers, inflation, etc.

The number is just under $101 billion and would, if left unchanged, grow to $109 billion in 2010-11.

State Controller John Chiang, meanwhile, has just closed the books on 2008-09 and says that during the past year, the state received $85.2 billion in general fund revenue – including $43.7 billion in personal income taxes, $23.7 billion in sales taxes and $12.3 billion in corporate income taxes – and spent $98.2 billion.

That $85.2 billion is $11.2 billion less than the state received from those same sources in 2008-09, thanks to the recession, with personal income taxes accounting for all of the net decline.

Even with sales and income tax rate hikes enacted in February, general fund revenue is expected to be – at best – flat in 2009-10. The current official estimate is $85.8 billion, but the trend is downward and no one would be surprised if revenue dropped to as low as $80 billion.

Put those numbers together and 2009-10 revenue will fall at least $15 billion short of financing the workload budget. Throw in the leftover shortfall from 2008-09 and add a modest reserve, and the deficit facing politicians is, the Governor's Office says, more than $26 billion.

Schwarzenegger and legislators appear to be wrangling over spending cuts in the $12 billion to $16 billion range, with the remainder of the "solutions" to be various forms of borrowing, deferrals and so forth. And so, though Schwarzenegger insists "this is the year we have to stop promising people things we can't deliver," whatever emerges from his intense discussions with legislators from both parties will fall well short of erasing the entire deficit.

In fact, deficits are likely to persist and perhaps grow even more intense. The state's economy shows no signs of hitting bottom, much less rebounding, and the latest tax increases and many of the spending cuts are temporary, effective for no more than a couple of years.

The Legislature's budget adviser, Mac Taylor, is projecting annual deficits in the $25 billion neighborhood into the indefinite future as the temporary spending cuts and taxes expire.

It is, indeed, time to stop promising services we cannot deliver, but no matter how the current negotiations turn out, 2009 is not likely to see the state's fiscal house truly set in order.