What They’re Saying About the California Budget Crisis

• Even if the governor’s budget proposals were adopted and work, the state would still face a shortfall of about $5 billion because of overstated revenues and understated expenditures, Legislative Analyst Elizabeth Hill reported February 20. Thus the state’s budget woes have grown from $12.5 billion in January to a record $15.5 billion (counting the $2.2 billion in recent budget-cutting actions). Here is a link to the analyst’s Web site for access to several reports, including suggested or recommended actions: www.lao.ca.gov

• State Controller Kathleen Connell warned that the state will be almost out of cash by the end of the fiscal year June 30 and probably will have to borrow $5 billion in 2002-03. She said that even Governor Gray Davis’ optimistic projection sees $2 billion in borrowing in the next fiscal year. She echoed views of the Legislative Analyst’s Office that the governor’s proposed budget overestimates revenues and federal funds and underestimates funding for mandated growth in school appropriations. She said the state faces a multiyear problem. “… we think the cash situation in July 2003 may be more precarious than it is at the beginning of this fiscal year.” Davis spokesperson Steve Maviglio said Dr. Connell has been wrong in the past and “we expect this pattern to continue.” (Los Angeles Times, January 23, 2002.)

• Legislative Analyst Elizabeth Hill on January 15 released initial reactions to the governor’s 2002-03 state budget proposal. The Overview of the Governor’s Budget says the governor’s plan for addressing the $12-plus billion budgetary shortfall appears to work “on paper.” However, she foresees a $4 billion operating deficit in 2003-04 because many of the budget’s assumptions are “overly optimistic, it relies largely oh one-time solutions, and it results in substantial long-term out-year costs.”
• Addressing the State's Fiscal Problem. “Annual excesses of expenditures over revenues will persist well beyond the budget year, absent corrective actions,” according to the Legislative Analyst’s Office in a December 19 report on the state’s fiscal problem. “The fact that the state’s projected annual operating deficit does not disappear over time indicates that the state cannot simply ‘grow itself’ out of its budget problem.” The analysis mentions revenue-related options, including three that were used in the 1990s. They are a two-year suspension of net operating loss deductions, two temporary high-income personal income tax brackets, and a sales tax increase.
• Assembly Member Barbara Matthews of Tracy, disappointed that funding for some of her pet projects has been cut off due to the budget crisis, was red-faced over state reneging on $100,000 for the Pixie Woods children’s park. “We’d already gone out there and made the presentations. And they were singing my praises. I was the woman of the hour.” The governor’s Department of Finance sent the Legislature a 17-page list of 2001-02 pork barrel projects that have been axed. (Stockton Record, January 15.)
• Noting that 32,000 millionaires paid California income taxes totaling $10.2 billion in 1999, Sacramento Bee columnist Dan Weintraub (January 15) wrote that a proposal to “soak the rich” with higher taxes to balance the budget is a risky proposition. If a few thousand of them moved to Nevada, where there is no state income tax, the hit on the state’s budget would be billions of dollars. “At this point, the wiser strategy might be to acknowledge California’s entrepreneurs for underwriting a huge portion of the services we all receive. Adopt your local millionaires. They’re paying for our kids’ educations,” Mr. Weintraub wrote. The message is “not that we should feel sorry for the wealthiest Californians. It’s that we should hope they stay wealthy, and Californians. Because if they get sick, economically speaking, or move, all the services they pay for – from public schools to health and welfare programs for the poor, and environmental protection – will suffer along with them.”
• In his State of the State address and budget proposal, Governor Gray Davis stopped just short of ruling out taxes as a budget-balancing solution. He said he would neither propose nor advocate new taxes. Later, he told reporters in a conference call: “Let me say this as clearly as I can. I don’t think it makes good economic sense to penalize individuals during a recession by raising their taxes … I don’t want new taxes. I do not anticipate that taxes will be raised.” So if new taxes are moot, why not take the pledge? The governor: “You know, I have my own style. I like to under-promise and over-deliver … I’ve always felt my best asset was low expectations. People expect too much of me, I’m in trouble.” (Los Angeles Times columnist George Skelton, January 14.)
• New or increased fees and penalties in the state budget proposal exceed $140 million and raised concern among those skeptical of whether they cross the line between taxes and fees. “The bottom line,” said Jon Coupal of the Howard Jarvis Taxpayers Association, “is it is a transference of wealth from private persons and the public to government.” Sandy Harrison, speaking for the Department of Finance: “They are not taxes. They are specific fees for people who use specific services or create specific state costs. There are no new taxes in this budget, but there are some increases in specific fees and penalties.” Fees and penalties include those to make it costlier to be a drunken driver, a civil litigant, a convicted crook, a power plant builder, a driver’s license applicant retaking the test, a vehicle registration scofflaw, and an insurance company buying a driver’s record from the Department of Motor Vehicles. (Contra Costa Times, January 14.)
• Governor Gray Davis, presenting his 2002-03 budget proposal: “My budget is balanced, it is responsible, it funds California’s vital services and it does not require new taxes.” (Sacramento Bee, January 11.)
• Senate Republican Leader Jim Brulte, reacting to the governor’s proposed borrowing to balance the budget: “What this means is a child born today who enters the work force 20 years from now will pay taxes to fund Governor Davis’ 2002-03 budget, and that’s just … wrong.” (Stockton Record, January 11.)
• Senate President Pro Tem John Burton: “Schools, local law enforcement, that’s good politics. But it is not good humanity. I don’t think you lose too much by being humane.” The senator criticized the budget for not giving welfare cost-of-living increases. (San Francisco Chronicle, January 11.)
• Assembly Republican Leader Dave Cox: “It’s like you tell a youngster to clean up their room and five minutes later the room is clean except you discover everything is hidden under the bed. Defer, delay and deflect, that’s all this budget is.” (San Francisco Chronicle, January 11.)
• “Blaming the state’s fiscal headache” just on the impending plunge in revenues “is like blaming a New Year’s Day hangover on the final drink from the night before. What preceded it mattered just as much.” – Dan Weintraub’s January 6 column in The Sacramento Bee, headlined “Riding the fiscal roller coaster.” The author surveys spending increases enacted over the past five years when the state’s general fund expanded at more than twice the rate of inflation and population growth. He also destroys the myth that the spending spree merely made up for several lean years in the early part of the 1990s.
• Californians prefer reduced government spending, not higher taxes, according to a Field Institute public opinion survey released December 28. As reported in the Sacramento Bee, more than 60 percent – including 56 percent of Democrats – believe their taxes already are somewhat or much too high. About one-third of the 1,000 adults in the poll said their taxes are much too high, another third said their taxes are somewhat high, and 32 percent said their taxes are “about right.” The poll from December 1 to 11 followed  reports that the state is facing a budget shortfall of $12 billion or more over the next 18 months. Sixty-three percent of Republicans surveyed called for spending cuts, but there was less agreement on what specifically should be axed. Poll Director Mark DiCamillo was quoted by The Bee: “The public has a tough time making these decisions. They want it both ways. They don’t want increase in their taxes and they don’t want service cuts in their programs.” The tax burden question provided responses that are about average since the Field Institute started asking the question 25 years ago. In 1982, when California was in the midst of a tax-cutting frenzy that included Proposition 13 four years earlier, Field found that 78 percent said their taxes were much too high or somewhat high.

• California faces a 2002-03 budget year “shortfall of $12.4 billion and potentially even more if the recovery we are assuming for next spring is delayed,” Legislative Analyst Elizabeth Hill reported on November 14. Here is a link to California’s Fiscal Outlook.

• Governor Gray Davis: “The terrible tragedy of September 11 has injected even more uncertainty into our economy, and we must prepare for greater revenue reductions as a result.” He gave department directors until October 22 to produce plans for 15 percent reductions in their budgets for 2002-03. Only public safety and fire-fighting spending would be spared from cuts, he said. Earlier, the governor had requested plans for cuts of up to 10 percent. (Governor’s memo to department directors, October 11.)