It’s time for Real Budget Fixes

Physician and Health Care Industry Executive and Former California State Assemblyman

Well, it’s been just about a week since the Governor came out with his May revision and the commentary hasn’t slowed down one bit. Most of the attention thus far has focused on the "sale" of the lottery and whether that truly is more borrowing or not.

No matter how you look at (borrowing or not borrowing), this one time source of revenue would be used to plug the deficit for up to three years, but wouldn’t solve the long term budget problem.   It‘s pretty ironic, since Governor Schwarzenegger came into office with a promise to fix the budget, that the real budget fix will be left for the next Governor.

The most important issue in this budget is the "ongoing structural deficit". Spending on an ongoing basis will continue to outpace revenues, and the estimates are that the ongoing deficit will be between $5-6 billion annually.  This does not include the payments that will come due for the unfunded retiree health liabilities, which are likely to add at least another $2 billion or more on an annual basis.

The Governor has proposed a spending limit and a reserve fund, but one of the major issues that continues to be unaddressed is the volatility of our state tax system.  The bulk of the State’s general fund revenues are made up of receipts from three different taxes-income tax, sales tax, and the corporate and banking tax. Over the years the income tax has provided an increasing percentage of the general fund revenues and of the three major sources of revenue it is by far and away the most volatile.

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It’s déjà vu all over again

Physician and Health Care Industry Executive and Former California State Assemblyman

To paraphrase Yogi Berra, "It’s déjà vu all over again". It was just a little over four years ago, in March 2004, that the legislature placed on the ballot and the voters approved Propositions 57 and 58. Proposition 57 authorized $15 billion in bond financing for the deficit at that time and Proposition 58 was supposed to end deficit spending "forever".

But here we are today, again faced with a budget deficit of at least $15 billion. Many in the legislature during the budget debate two years ago warned that the housing market was going to bust, the economy was going to slow, and that state revenues were going to drop. In fact, clearly prescient predictions of $15-20 billion deficits were made, but little attention was paid to the warnings. This year’s budget deficit should not have been a surprise to anyone.

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