Posted on 07/06/2005 6:39:07 PM PDT by NormsRevenge
SACRAMENTO - It's like a credit card bill that California lawmakers can't seem to get under control - the state budget deficit born of a perpetual imbalance between what the state spends and what it takes in.
The gap stood at $17 billion last year, had been projected to be almost $9 billion this year and is likely to be about $5 billion in the 2006-2007 fiscal year.
Despite a balanced-budget agreement struck this week, economists and fiscal analysts warn that future shortfalls are likely to continue until a long-term fix is found.
"We haven't come to grips with the fundamental imbalance between the cost of basic services and the revenues brought in from the current tax system," said Jean Ross, executive director of the California Budget Project, which evaluates the impact of state spending on low- and middle-income families.
"No one is willing to cut deeply enough to bring the budget into balance," she said. "And because of the two-thirds vote required to pass a tax increase, that hasn't happened either."
Gov. Arnold Schwarzenegger and the top legislative leaders from both major parties agreed to a $117.5 billion spending plan Tuesday that they say balances fiscal responsibility with adequate funding of key programs.
The budget deal, which lawmakers are expected to consider on Thursday, achieves Schwarzenegger's main goals of avoiding deficit spending and not raising taxes. Overall spending increased because of an unanticipated infusion of about $4 billion that flowed to state coffers because of the improving economy.
Both sides cautioned that the budget for the fiscal year that began last Friday doesn't solve the state's long-term fiscal imbalance, a result of generous spending by lawmakers in recent years and complex funding formulas that lock in spending increases each year.
The current trend dates back to the late 1990s when a booming economy generated billions of dollars in additional tax income for the state. Instead of setting some of that money aside, lawmakers spent it on education, health care, highway projects and lucrative contracts for some state employee groups. They also cut taxes.
When the high-tech bubble burst, the state was like an overextended consumer that suffers a big drop in income but doesn't stop spending. Many of the programs that received extra money during the good years are ongoing, meaning funding remains high even when tax revenue drops.
"We got all those revenues from the stock market boom and when the market collapsed, the spending didn't stop," said Michael Bazdarich, a senior economist with the UCLA Anderson Forecast. "It's a problem that still bedevils us."
While some critics have argued that lawmakers should have cut spending immediately, many of the new expenses could not be easily reduced. Increases in some key education programs, for example, were protected by Proposition 98 - a voter-approved funding guarantee that required ongoing support.
A program to provide subsidized health insurance for children of the working poor was considered too politically important by Democrats that control the Legislature, even though costs rose more than 1,700 percent between 1999 and 2003, to more than $800 million a year because of a big expansion in enrollment.
Generous labor agreements - such as a contract signed with prison guards in 2002 - could not be scaled back without worker approval even as the contract costs nearly tripled above estimates to $2 billion.
One attempt was made to balance the budget by raising taxes - the 2003 tripling of the vehicle license fees. But that unpopular tax was part of the rebellion against former Gov. Gray Davis that led to his recall from office. Schwarzenegger rescinded the increase on his first day in office.
While the move was popular among taxpayers, it left a budget hole of about $4 billion a year.
Without spending cuts or tax increases, the state was forced to borrow the money needed to meet its spending obligations during the last few years. The amount that the state has borrowed to cover its shortfalls stands at more than $25 billion, according to the treasurer's office - pushed up dramatically by the $11 billion in bonds sold last year.
The budget agreement between Schwarzenegger and lawmakers includes no new borrowing, but paying down the debt on the state's existing loans will cost more than $3.3 billion next year, said David Blair, a Southern California-based senior analyst for Nuveen Investments and an expert on California bonds.
Blair said a recovering state economy that generated more than $4 billion in unexpected income helped Schwarzenegger produce a balanced budget this year. Economists question whether the upswing will continue.
"2004 was a pretty good year. The stock market went up, corporate taxes went up," said Steve Levy of the Center for Continuing Study of the California Economy. "But 2005 we already know is not going to be as good."
ON THE NET
Gov.'s Department of Finance: www.dof.ca.gov/
Treasurer's office: www.treasurer.ca.gov/
No Fault Gubamint in action
If all the illegals in California were replaced with legal workers that had to pay state taxes, you think that would help?
Nope.
SPending is a religion and these folks are fanatics. :-)
Well, too bad. I already took my guns and money and left and I'm not coming back. They just wore me out with their stupidity.
Argument in Favor of Proposition 58(snip)
California faces unprecedented budget deficits. Overspending has led to serious short falls which threatens the state’s ability to pay its bills and access financial markets. This proposition is a safeguard against this EVER HAPPENING AGAIN. Proposition 58 will prevent the Legislature from ENACTING BUDGETS THAT SPEND MORE MONEY THAN WE HAVE.
Arnold Schwarzenegger
Governor, State of California
Wow that was very well written. Is this your stuff or a paraphrase from someone else.
a coagulation of random thoughts.
The scars being reminders of the past is from some quote I picked up somewhere.
The rest is mine, all mine.
(Denny Crane: "Sometimes you can only look for answers from God and failing that... and Fox News".)
(Denny Crane: "Sometimes you can only look for answers from God and failing that... and Fox News".)
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