California's budget crisis: What happens when the pixie dust runs out?(Read article summary)
California has balanced its budget by including lots of hoped-for revenues and delayed payments and other tricks that only postpone the inevitable.
Rich Pedroncelli / AP
Itâ€™s never really fun to say â€śI told you so.â€ť Well, itâ€™s a little fun. The Germans even invented a word for this â€“ Schadenfreude â€“ which loosely translates as â€śsour grapes.â€ť
Maybe itâ€™s sour grapes that has the rest of the country repeatedly turning to Californiaâ€™s budget mess. Or maybe California is just always in a budget mess. Indeed, the state has faced operating shortfalls â€“ or gaps between inflows and outflows â€“ in every year since 2002.
But this year, it would seem that state lawmakers and outgoing Governor Arnold Schwarzenegger have really outdone themselves. They busted through last yearâ€™s tardiness record by enacting a budget 100 days into the new fiscal year. Like last year, they balanced the books â€“ but with a combination of spit and polish and pixie dust.
In particular, they assumed that the feds would pony up $5.3 billion, although only $1.3 billion has been promised so far (as an internal presentation said: â€śStill more work to do in Washingtonâ€ť). They hoped for a speedier economic recovery ($1.4 billion). They borrowed from internal funds ($2.7 billion) and deferred payments to schools and community colleges ($1.7 billion). They also suspended a Net Operating Loss tax deduction ($1.2 billion) and planned to sell and lease back 11 state properties ($0.9 billion) â€“ actions which simply put off todayâ€™s problems until tomorrow.
To be sure, states often substitute happy thoughts for hard choices. And all states â€“ not just California â€“ are still reeling from the recession, when they suffered their worst revenue declines on record as caseloads mounted for Medicaid and other public assistance programs. Although the latest data show a slight uptick, state and local revenues remain essentially flat. Meanwhile, state and local governments are slashing payrolls to make ends meet.
Californiaâ€™s budget also makes some real cuts â€“ including $1.6 billion from pay and benefits. And it increases employee contributions toward retirement for all new hires and ends the practice of â€śspiking,â€ť or boosting final salaries to raise pensions. These reforms may pave the way for other states, which together confront unfunded promises of more than $1 trillion.
Finally, in his last California budget deal, the Governor insisted on a constitutional amendment increasing the maximum size of the rainy day fund and requiring deposits of above average revenues. Of course, this measure would have to go on the ballot â€“ and voters rejected a similar proposal just last year. Some would call this sunny, California optimism while others would say itâ€™s Peter Pan naivete.
Unfortunately, itâ€™s no fun to be right when it comes to calling bad news, but sometimes youâ€™ve got to at least start fixing the roof when itâ€™s still raining. Wishing for the sun to come out is just not enough.
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