Now the Budget Grumbling Can Begin

John Wildermuth
Journalist and Political Commentator

After more than two months of wrangling, Gov. Arnold Schwarzenegger and legislative leaders have signed off on a tentative deal that closes the state’s $26.3 billion budget deficit.

Now the real grumbling can begin.

Although details of the agreement, which was announced Monday evening, haven’t been released, enough broad outlines have leaked to show who won and who lost. The moaning will only get louder as the budget numbers solidify.

Actually, with the state’s current economic nosedive, there aren’t any real winners in the new deal, which revises a budget signed only months ago. Some groups, however, get hurt less than others.

Schools – and the education lobby – showed that they still pack plenty of political clout in Sacramento. Although there was no way they could avoid billions of dollars in cuts for next year, the final agreement ensures that they will be repaid at least $9.5 billion to make up for trims in recent years.

Local government, however, found that no good deed – or frugal budgeting – will go unpunished. While legislators from both parties talked piously about the unfairness of taking money from cities and counties that are struggling with their own fiscal troubles, that won’t stop the state from grabbing nearly $4 billion in local property tax and transportation money, with a promise to repay much of it in three years.

That will force many cities and counties to reopen their budgets and make new and deeper cuts in services.

State employees managed to fight off the governor’s proposed 5 percent pay cut, but they’re still facing three unpaid furlough days a month, which trims their pay by about 14 percent.

Higher education will take a hit that’s going to result in higher fees and lower enrollment and the only good news for health and welfare programs is that their cuts aren’t going to be as deep as the governor first proposed.

Probably the worst part of the budget deal is that it’s only a none-too-sturdy patch on California’s financial problems, not a solution. While the newly revised budget contains a reserve fund that’s expected to be close to $1 billion, it’s hard to find any financial guru who thinks that rainy day fund will last until the end of the fiscal year next June.

Personal income tax revenue alone was nearly $1 billion below state estimates in June and with unemployment soaring, the financial storm clouds aren’t going to clear anytime soon.

Which leads to the other problem with the budget agreement. Let’s let the governor lay it out in his enthusiastic announcement of the budget deal Monday night.

“This is a budget that will have no tax increases, a budget that is cutting spending,’’ Schwarzenegger said. “We deal with the entire $26 billion deficit, around $15 billion in cuts we are making … I think this is a really great, great accomplishment.”

Math check. If you have a budget with no tax increases and $15 billion in cuts, how do you close a $26 billion hole?

To use the governor’s own phrase, you “kick that can down the alley” by using magic money and accounting gimmicks that push this year’s expenses off into the future.

For example, the agreement calls for boosting the personal income tax withholding rate. While that brings in money now, taxpayers will get it back in higher refunds next year. Likewise, moving the state’s final payday of the year from June 30, 2010, the last day of the current budget year, to July 1, 2010, the first day of the next fiscal year, doesn’t save the state a nickel. It merely makes that payment next year’s problem.

While the cuts in education and the borrowing from local government spruce up the current balance sheet, that’s money that will have to be repaid. No one’s crystal ball can guarantee that times will be better when those bills come due.

But that’s in the future. Right now California is mailing out millions in IOUs every day, banks won’t answer the state’s telephone calls and the clock is ticking on financial Armageddon.

Something had to be done and the governor and legislative leaders have finally recognized that, unlike fine win, the state’s budget problems weren’t going to get better with time.

The plan now is for the Legislature to vote on Thursday. The governor will quickly sign the revised budget, state financial folks will hit up banks for the long-delayed loans and Controller John Chiang will see how soon he can stop printing the IOUs.

The revised budget likely will be out of balance as soon as Schwarzenegger signs it, but that’s a problem that’s down the alley.

John Wildermuth is a longtime writer on California politics.

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