California Budget – Expect Another Shortfall

I agree with the Wall Street Journal’s assessment of the current California budget solution, California Budget Woes to Persist:

State lawmakers on Thursday evening were preparing to vote on a proposal to close a $26 billion budget deficit, but the plan likely will be a stopgap that passes the state’s financial woes on to the next year and the next governor.

The state will probably amass an additional shortfall of as much as $10 billion during this fiscal year, economists say, calling revenue projections for the proposed budget too optimistic. And the financial woes will likely persist for at least the next several years. Though lawmakers are cutting $16 billion in spending, they are closing the remaining $10 billion gap with borrowing, accounting gimmicks and asset sales that will be impossible or difficult to replicate in the future.

“The state has just once again failed to address its underlying problem,” said Bill Watkins, executive director of the California Lutheran University’s Center for Economic Research and Forecasting. “They do some of the hard choices they have to, and they essentially have to pass on part of the problem for later.”

The budget mess is already taking center stage in the race to succeed Gov. Arnold Schwarzenegger, who must leave office after the November 2010 election because of term limits. “It’s the issue that transcends all other issues,” San Francisco Mayor Gavin Newsom, a Democratic candidate, said in an interview Thursday. “You can’t talk about issues in health care, education and infrastructure improvement until you focus on the issue of these structural imbalances in the budget.” Mr. Newsom blasted the spending plan for taking $4.7 billion from local governments, saying the governor should have been open to new taxes on tobacco and oil extraction instead.

My comment: If you are thinking about voting for Gavin Newsom for next governor, think again. Keep this statement of his in mind. He may be personable and nice, I know that … he’s my mayor. But he has it exactly backwards. He is seriously considering to continue raising taxes on Californians.

Republican contenders such as Meg Whitman, the former eBay Inc. chief executive, condemned the budget as well. “As painful flaws begin to appear in this agreement, Californians should demand strong leadership focused on job growth, fiscal restraint and the effective management of our state,” she said in a statement earlier this week. Through a representative, Ms. Whitman declined to be interviewed.

Steve Poizner, a Republican gubernatorial candidate and the state’s elected insurance commissioner, said he gives the budget compromise a C-minus because it contains too few overhauls and pushes the fiscal problems to future years. “We’re going to go from one budget issue to another until we get a couple of basic reforms that are going to turn the state around,” he said. “I’m advocating modernization and overhaul.”

Former U.S. Rep. Tom Campbell, a Republican candidate who has served as the state’s finance director, didn’t return calls for comment.

Even California legislative leaders who negotiated the budget pact acknowledge they will probably have to revisit the spending plan by January to close a new shortfall.

They already are spoiling for another fight along party lines over taxes and spending cuts. “My clear message after tonight is that we have cut enough,” said Senate President Darrell Steinberg, a Democrat. “When you see people writing about the California dream and is it still real, I think that is a reflection of very common feelings that public services, education, transportation, public safety matter to the quality of life in California.”

My comment: Ah yes, those good old values that made California the great state it once was. The values that made innovative entrepreneurs and pilgrims come here to start a new life, dreaming of government service, paying taxes, teaching, train dispatchers, and policework. – The extent to which these state legislators are out of touch is truly staggering.

Republicans, meanwhile, vow to fight new taxes. Almost every GOP state legislator has signed an antitax pledge, though six of them in February broke party lines to approve a plan to close a then-$42 billion shortfall through tax increases and deep cuts. Minority Republicans can hold up budget deals because California requires a two-thirds vote to pass spending plans.

Legislative leaders, who negotiated the budget deal with the governor, have defended the use of one-time fixes in the current budget. Mr. Steinberg said the temporary solutions come in lieu of more spending cuts that would have hurt the poorest Californians. Assembly Minority Leader Sam Blakeslee said the state’s revenue drop amid the recession is historically large, and the fixes are meant to keep California afloat until better times.

Economic forecasters still aren’t sure when that will be. Mr.Watkins said his forecast shows the state won’t show signs of economic growth until early 2011. That’s much more pessimistic than the projection used for the current budget pact. “They’re using old data,” Mr. Watkins said of state finance officials, “and so the revenues will disappoint.”

… which will ensure that the California budget saga is bound to continue.

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