Phantom $4-Billion Haunts the Budget

Joel Fox
Editor and Co-Publisher of Fox and Hounds Daily

The $4-billion dollars that was added to the budget last June, based solely on optimism that economic conditions would improve, and brought the budget into balance on paper (and, by the way, got the legislators paid) never showed up. The Legislative Analyst’s Office issued a report yesterday that says the state is $3.7 billion short of revenues this year.

Whether the trigger that was built into the budget in case the $4-billion did not appear gets pulled, depends on a number of factors. The first is what the governor’s Department of Finance reports the deficit is in about a month.

Even if the Department of Finance figures match the LAO’s numbers there is no certainty that the trigger will be pulled to the full extent of the law — $2-billion.

The largest portion of that $2-billlion would come out of education, with K-12 being reduced $1.1 billion.

Legislators and the governor might peer into the same crystal ball that forecast the $4-billion windfall and see brighter days ahead, concluding that the deepest cuts don’t have to be made.

Then there is the question of taxes. The governor and school interests are already working on plans to put tax increases on the November ballot. But, will the governor go back to the legislature with a proposal for tax increases now, promising to abandon the ballot measure if the legislature passes a tax increase?

The governor was not able to get Republicans to go along with tax increases in the spring. He might be convinced that a drastic hit to schools will generate public outrage and help change the minds of some legislators.

The appetite for tax increases is still not there if you consider the new Public Policy Institute poll released yesterday. While the poll tested only attitudes about higher education in the state, despite more than six in ten saying that higher education is going in the wrong direction, tax increase proposals to better fund higher ed received less than majority support.

Then again, the governor might try to couple concern over school cuts with a sweetener for Republican legislators to reach a deal. Recently, the governor turned down a proposal from Republican legislative leaders to call a special session for pension reform. Would he call a special session that would consider both pension reform, which the Republicans want, and a tax increase, which the Democrats seek?

From the Grasping at Straws Department — if there is any good news in the LAO report, it is that despite the state looking at a $13 billion budget deficit for the next budget year as a consequence of the current year projected deficit and the operational budget shortfall, long term forecast by the LAO shows the deficit dropping to $5 billion by 2016. That is the result of recent budget cuts and the prospect of improved revenue.

 

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