California budget still in the hole by $8 billion.

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Loner
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California budget still in the hole by $8 billion.

Post by Loner »

SF Gate:
California faces new fiscal crisis, report says

Matthew Yi, Chronicle Sacramento Bureau

Saturday, March 14, 2009
Legislative Analyst Mac Taylor displays a copy of his off...

(03-14) 04:00 PDT Sacramento - --

California's 3-week-old state budget is already out of balance, according to a report Friday by the nonpartisan legislative analyst, who said the state's revenue will fall $8 billion short of projections in the fiscal year that begins July 1.

And the shortfall could be billions worse if voters reject at least three of the six ballot measures in the May 19 special election that are tied directly to the state budget's bottom line, Legislative Analyst Mac Taylor said.

On Feb. 20, Gov. Arnold Schwarzenegger signed the budget, which closed a $41 billion gap by relying on nearly $6 billion from ballot measures. The initiatives would allow the state to borrow $5 billion against future lottery sales and shift $830 million in taxes collected for children's health care and mental health programs to the general fund.

"The passing of those measures is pretty critical in improving the state's fiscal situation," Taylor said as he released his 28-page report on the state budget and revenue forecast. "If they don't pass, it's going to be a lot more work."

While the current budget includes about $2 billion in reserves, Schwarzenegger and the Legislature must act in the coming months to solve what Taylor's report estimated will be a $6 billion deficit in the best-case scenario - in which voters approve the measures and the economy doesn't sink faster than expected.

Voter rejection of the budget measures would double the deficit, to $12 billion, the report said.

In addition, Taylor said the state's fiscal crisis will get worse after next year because many solutions to this year's deficit are one-time fixes, such as the lottery borrowing and money from the federal economic stimulus package.

The loss of that revenue, even if voters pass the ballot measures, could push the state's deficit from $12.6 billion in 2010-11 to $26 billion in 2013-14.

Senate President Pro Tem Darrell Steinberg, D-Sacramento, said he was not surprised by the projected drop in state revenue given the continuing recession. And one Republican leader refused to consider more taxes.

"Further tax increases should not be on the table," said Assembly Republican Leader Mike Villines of Clovis (Fresno County), who helped broker the budget plan that included more than $12 billion in tax increases.

"We made it clear that any further budget action we may need to take in the coming months must be done solely through savings to government programs," he said in a written statement.

H.D. Palmer, a spokesman for Schwarzenegger's finance director, said the governor will update his own revenue forecast in May after income taxes due in April are counted.

One reason the budget seems so quickly out of balance is because it was based on economic data from early December, when state finance officials began crafting the budget.

But the economy has continued to deteriorate in California and across the nation, Taylor said, and nearly all economic indicators have been negative since the budget was signed.

They include the nation's revised domestic product for the fourth quarter of 2008, which fell more than 6 percent; higher-than-expected unemployment rates; slowing foreign trade; and continuing struggles in the nation's financial and credit markets.

The legislative analyst said some of the expected drop in revenue could be offset by lowering education funding to the minimum level guaranteed under the voter-approved Proposition 98, which in part uses state revenues to calculate school funding.

With the expected reduction of state revenues by $8 billion, the state's minimum funding obligation to K-12 schools could be cut by $3 billion, Taylor said.

Further cuts in education spending could be backfilled with funds from the federal stimulus package, he added. But dropping the Prop. 98 minimum guarantee would lower school spending in future years, which is calculated in part based on the previous year's funding, Taylor said.

Kevin Gordon, a lobbyist for the state's public schools, said schools have already taken more than their fair share of budget cuts.

"It's one thing for the state to try to talk about how to survive the short term," Gordon said. "It's another thing to permanently relegate the schools to $3 billion in cuts that'll never come back."

California's economic situation is similar to the nation's, as consumer spending continues to slow and housing prices continue to drop, Taylor said.

The legislative analyst said he thinks the economy will begin recovering in the first quarter of 2010 rather than the end of this year - and that the recovery will take much longer than in previous recessions.

The legislative analyst said improvements in the state's ailing housing and job markets would be key to a broad economic recovery.

While California's fiscal woes continue, having a budget in place has resulted in at least one positive impact: State Treasurer Bill Lockyer said Friday that he will try to sell $4 billion worth of general obligation bonds later this month to help jumpstart infrastructure projects in the state.

He plans to run radio and newspaper advertisements in the Bay Area, Los Angeles and New York City to create interest among investors to buy the bonds, which will go on sale from March 23 to 25.

"It's great to get back in the game," Lockyer said in a written statement. "It's been too long, and we think investors agree. The market is ready for a California comeback."
More pain, no gain

The state Legislative Analyst's Office said Friday that the tanking economy will cut state revenue more than expected. Here are two scenarios based on what voters decide in the May 19 special election:

$6 billion

Deficit in the fiscal year beginning July 1 - if voters approve Propositions 1C (would borrow from future lottery funds), 1D (would shift children's health funds) and 1E (would shift mental health funds).

$12 billion

Deficit in the coming fiscal year - if voters reject those ballot initiatives.
So after the drama and conclusion of last months budget battle which resulted in tax increases set to begin on April 1st, which include increases in sales tax, and vehicle registrations, and a some cuts in future spending, this mess still hasn't finished. This topic has been discussed before, and in a previous thread, I think the only solution to the problem for CA will be for it to go bankrupt and have an outside party restructure the budget; as the legislature and governor will not cut spending to close the budget. However, others were against that solution.

If you want to see how the CA budget breaks down, there's a very detailed website about the budget, and here's direct link that breaks down where all the money goes to.
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Master of Ossus
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Re: California budget still in the hole by $8 billion.

Post by Master of Ossus »

I still think it can be done by folding the Utilities collections into the general fund and eliminating all the bullshit programs involved in that, but I agree that long-term we've got to cut spending.
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Re: California budget still in the hole by $8 billion.

Post by Guardsman Bass »

Good luck with that. California's population is still growing, and we haven't seen any signs that the majority of the populace is willing to give up services they already have (much less things they want). I'm with Loner on the issue; they really need someone outside to step in and restructure the situation.

Or, alternatively, they could try a new constitution.
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