Estimated state budget deficit reaches $25.4 billion

Estimated state budget deficit reaches $25.4 billion

The economy, new restrictions approved by voters, phantom savings in the budget and the end of temporary taxes add to gloomy forecast by Legislative Analyst's Office for the next 18 months.

By Shane Goldmacher, Los Angeles Times
November 11, 2010
Reporting from Sacramento

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As Jerry Brown prepares to take over as governor, California faces a $25.4-billion deficit — far larger than state officials were projecting only days ago — the state's chief budget analyst said Wednesday.
The figure, projected over the next year and a half, results from billions of dollars in phantom savings approved by Gov. Arnold Schwarzenegger and legislators last month, more budget restrictions passed by voters last week and predictions of a "painfully slow economic recovery," according to the report from the nonpartisan Legislative Analyst's Office.
In addition, more than $8 billion in temporary sales, car and income taxes are set to expire in the coming year, and the federal stimulus program that has helped prop up schools, healthcare for the poor and other state programs also will soon disappear.
The report shows $20-billion annual shortfalls in future years as well.
"There is no good news," said Legislative Analyst Mac Taylor.
Simply keeping K-12 public schools funded at their current level would expand the deficit, Taylor said. That is because billions of dollars in school cutbacks are already factored in.
The predicted $25.4-billion deficit is the equivalent of about 29% of this year's general fund budget. Erasing the gap will require a combination of severe cuts and more in tax collections over several years, the report said.
"They have to consider everything," Taylor said of lawmakers and the governor-elect.
Brown, on a post-election vacation, was unavailable for comment. He is scheduled to return to Sacramento next week. One of his campaign pledges was that he would not raise taxes without voters' approval.
Republicans immediately vowed to block any tax hikes, and Democrats pledged to protect core programs and jobs and to use the shortfall as a reason to restructure government. Senate minority leader Bob Dutton (R-Rancho Cucamonga) called for an emergency legislative session to immediately address the projected deficit.
Schwarzenegger signed the latest spending plan in modern history last month, 100 days into the fiscal year. The analyst's report Wednesday estimated that $6 billion, or roughly a third, of the deficit-cutting that the governor and legislative leaders said they achieved will never materialize.
Prisons spending will outpace what was budgeted only a month ago by $965 million, and overly rosy assumptions of a helping hand from Washington will prove too optimistic by $3.5 billion, according to the report.
Any future aid from the nation's capital, where Republicans decisively seized control of the House of Representatives last week on promises to curb federal spending, is also unlikely.
"Good luck," Rep. Howard P. "Buck" McKeon (R-Santa Clarita) said Wednesday. "We're going to be trying to reduce spending here, not increase spending."
Taylor sought to lower expectations that a robust economic recovery would pave the way for California's return to solvency. His report reduces tax receipt estimates for the current year, citing a "sluggishly" improving economy.
Tax collections in California — a center of the mortgage boom and bust — won't return to their peak levels of 2007-08 until 2015-16, the report forecasts.
"It's not just budget, it's also the economy," said Assembly Budget Committee Chairman Bob Blumenfield (D-Woodland Hills).
Taylor projected a $22.4-billion deficit in fiscal 2012-13. That ebbs only slightly to $19.4 billion by fiscal 2015-16. Even those bleak figures could prove optimistic: They assume no cost-of-living adjustments and that California will win all pending lawsuits against the state.
Voters widened the deficits last week by approving two measures that constrain legislators' ability to assess fees on businesses and to take funds from local governments. Combined, the measures unravel $800 million in savings this year and up to $1 billion annually in the future, the report said.
But Californians also voted to allow the Legislature, which Democrats control, to pass budgets with a simple majority rather than a two-thirds vote. That could eliminate the need for GOP approval, which has often stalled the budget process. But a two-thirds vote is still required to raise taxes, which necessitates some Republican support.