Failed budget measures and gimmicks have led to a $6.3 billion
shortfall for the state government in the current fiscal year, according to a
new report from the non-partisan Legislative Analyst's Office. If legislators
do not solve this year's shortfall, the current deficit will be added to next
year's estimated shortfall of $14.4 billion, the analyst reported.
The forecast assumes
that the state will win pending court cases on furloughs, redevelopment, and
the governor's authority to make line-item vetoes. It also assumes that there
will be no inflation adjustments or cost-of-living adjustments (but since the
cost of living is down, COLAs would not amount to much anyway). The analyst
also predicts more red ink and frequent budget disasters in future years. Click
here for the
full report.
The current-year
deficit, which comes as no surprise to Capitol observers, mostly stems from:
·
Phantom Budget Cuts. Legislators scored billions of spending
reductions in prisons, Medi-Cal and elsewhere that were unlikely to occur.
·
Failure to Sell State Compensation Insurance
Fund. The budget was
balanced on the assumption that the state would sell the State Compensation
Insurance Fund in the budget year for $1 billion. At the time, observers
thought this was a leap of faith. It was ... and the budget-writers' prayers
have not been answered.
·
Illegal Shift of Transportation Funds. The Legislature attempted to shift $800
million in local transportation funds to the state, but a court said that was
illegal.
·
Increased School Spending. The Proposition 98 minimum funding guarantee
was underestimated by $1 billion when the budget was adopted.
·
Shortfall in Tax Revenue. The infamous Rosy Scenario made her way into
the budget, resulting in an overestimate of state tax revenue for 2009-10. The
general fund revenue shortfall for the first four months of the fiscal year is
$794 million. The legislative analyst pegs the revenue for the full year at
only $496 million less than budgeted, which assumes that revenues will exceed
estimates for the rest of the fiscal year.
The analyst's
estimate of a $21.3 billion deficit for 2010-11 assumes that the Legislature
will do nothing to shrink the current-year deficit. Balancing the budget for
next year will be a Houdini-like feat. One-time gimmicks used this year will
not be available, federal stimulus dollars place constraints on what can be cut
– and by how much – and the analyst projects a $296 million decline in general
fund resources.
The legislative
analyst said that to solve the problem, the Legislature must take "early
action," focus on long-lasting solutions, make significant reductions in
major state programs, consider revenue options, increase efforts to secure new
federal assistance, and ask voters to free up funds from ballot-box budgeting
for First Five, mental health and after-school programs.
Among the revenue
options, the analyst points to ending "tax expenditures" that are not
cost-effective; increasing user fees to shift the cost of programs to
beneficiaries, when appropriate; and extending the recent car tax increase (but
at a slightly lower rate of 1 percent) and the dependent income tax credit
elimination beyond their scheduled expiration in 2010-11.
In other
budget-related news:
FTB Accounts Receivable Are Up. Contributing to the revenue shortfall is the
fact that accounts receivable at the Franchise Tax Board are increasing. Gina
Rodriquez of Spidell Publishing reported that through
August, accounts receivable were up $1.6 billion over last year. The overall
amount of receivables is $8.1 billion, of which $5.5 billion is thought to be
collectible.
H.D. Palmer, a
spokesman for the Department of Finance, said the increase in unpaid taxes is
bigger than the FTB anticipated. FTB spokeswoman Denise Azimi
said the increase in receivables is primarily due to the recession. (Sources: Spidell Publishing and San
Francisco Chronicle, November 19.)
UC Regents Increase Student Fees 32 Percent,
Prompting Protests. On
November 19, the University of California regents voted to increase tuition
fees 32 percent for the remainder of the 2009-10 academic year.
"We're being forced to impose a user tax on our students and their
families," UC President Mark Yudof said.
"This is a tax necessary because our political leaders have failed to
adequately fund public higher education."
UC Santa Cruz
Professor Robert Meister criticized the increase, saying the university's
spending priorities have placed "construction … ahead of
instruction." Professor Meister said the fee increases will be used to
allow the UC system to borrow more money for capital projects.
Undergraduates pay
about $20,000 a year in tuition, and the state gives the UC system about
$10,000 per student. Capitol Weekly
reported that "the instructional cost per student is only around $5,000 a
year, leaving about $25,000 per student to be appropriated elsewhere."
Students at several
campuses have been staging major protests in response to the tuition hike, and
UC employees have joined in many of the protests. At the UC Santa Cruz campus,
protestors caused more than $50,000 in damage when they staged a three-day
occupation of Kerr Hall. (Sources: University of California news release,
November 19; Santa Cruz Sentinel,
November 25; Capitol Weekly, November
25.)
Cal-TaxReports, December 7, 2009
© 2009 California Taxpayers'
Association.
All Rights Reserved.