Friday, November 20, 2009

LAO: Real Budget Pain to Endure

I was reminded of an old saying in politics while reading the new report released this week by the Legislative Analyst’s Office (LAO): “a billion here, a billion there, pretty soon you’re talking real money.”

Over the next 18 months we face a $20.7 billion gap in the state’s General Fund: $6.3 billion in the current budget year and a $14.4 billion gap in 2010-2011. A $21.3 billion out-year budget gap follows in 2011-2012.

Most of the current budget gap originates in the failure of some of the solutions we adopted as part of the July budget revision, including the governor’s proposed sale of the State Compensation Insurance Fund (SCIF), losing court cases relating to budget solutions, and failing to reduce prison costs. The $14.4 billion gap for 2010-2011 results from losing one-time solutions in the current budget and more realistic forecasts for next year. And, the gap grows to $21.3 billion in 2011-2012 because the temporary tax increases adopted last February will sunset – a one-cent sales tax increase and a 0.25% income tax surcharge on all income brackets.

In order to close the budget gap, the LAO recommends a four-pronged approach of early action, long-lasting solutions, assessing budget priorities, and new revenue options.
Simply cutting $20.7 billion from the budget, as some Republicans have proposed, means eliminating basic programs that literally keep Californians alive. The day the LAO’s report was issued, the governor declared he would not consider new tax revenues as part of the solution.

Consider these figures. Our 18-month $20.7 billion budget gap is more than we spend on higher education ($10.547 billion) and corrections ($8.21 billion) combined. It is over 80 percent of what we spend on all health and human services programs ($24.95 billion) and nearly 60 percent of what we spend on K-12 education ($35.04 billion).

Therefore, gravity of the budget decisions before us is extreme. And, the decisions we make now will function as a new budget baseline for years to come because our state revenues will not pick up in the mid-term. The revenue returns of a more precipitous economic recovery elude us because of what economists call a “U-shaped recession.”

Furthermore, the public is just now beginning to see the results of the cuts we made last summer—classrooms are larger, state colleges are getting more expensive, DMV offices are closing, state parks are closing, and courthouses are closed one day a month, already resulting in a severe backlog of cases. The public must be asked to weigh in on how much more it will tolerate.

Since the budget pains will be here to stay for a while, the budget decisions ahead of us must be made out in the open with significant public input. And, every solution available to us must be on the table.