California Gov. Jerry Brown released his 2012 budget plan yesterday. It contains a lot of numbers, but one set of them is especially important: the size of the "structural deficit." The 2011-12 fiscal year is projected to end up $4.1 million the red. If there are no new taxes or cuts to spending in 2012-13, as Brown has proposed, the shortfall is expected to be $5.1 million. That makes the total deficit for 2012-13 $9.2 billion.
The chart above shows what this looks like over time.
So what exactly is a structural deficit? Basically, it's the deficit you can't escape. Here's a snappy defintion, from DaveManuel.com:
In a structural deficit, things are so out of balance that a country (or state, or municipality, etc.) will post a deficit regardless of how well the economy is doing. In a strong economy, revenues (tax receipts, etc) rise due to increased economic activity (more jobs, more spending, etc). With a structural deficit, the strength of the economy is irrelevant - a deficit will be posted regardless..
How do countries get rid of structural deficits?
1. Cut spending.
2. Raise revenues (usually through tax increases).
Neither of these options are too appealing for politicians, which is why many structural deficits continue to linger.
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California Gov. Jerry Brown revealed his 2012 budget today — earlier than his office had planned, due to an error or technical glitch that caused the budget to be posted prematurely on the Department of Finance's website.
The budget doesn't really sugar-coat the challenges that the state faces, although as the L.A. Times points out, the deficit situation has improved greatly:
[The budget] paints a better fiscal picture than just a year ago, when the state faced a $26-billion deficit. Brown's budget anticipates closing the current gap through a combination of spending cuts and the tax increases, which would kick in at year's end, providing $4.4 billion in revenue.
Ah, the tax increases. Brown laid them out back in December, when he published an open letter on the governor's website. I posted on the plan at the time:
I've been Storifying the euro crisis, so I thought I'd use the tool to capture some Twitter commentary in reaction to California Gov. Jerry Brown's new tax proposal. Were people surprised that Brown wants to dodge the Legislature, raise taxes, and go straight to voters via the ballot initiative process. They were not. The Twitterverse had additional insight, as well.
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SACRAMENTO, CA - OCTOBER 27: California Governor Jerry Brown announces his public employee pension reform plan October 27, 2011 at the State Capitol in Sacramento, California. Gov. Brown proposed 12 major reforms for state and local pension systems that he claims would end abuses and reduce taypayer costs by billions of dollars. (Photo by Max Whittaker/Getty Images)
Yesterday, Gov. Jerry Brown laid out his tax proposals for California voters in an open letter at the governor's office website. Brown wants to go straight to the voters, via the ballot initiative process. The plan is fairly simple:
My proposal is straightforward and fair. It proposes a temporary tax increase on the wealthy, a modest and temporary increase in the sales tax, and guarantees that the new revenues be spent only on education. Here are the details:
• Millionaires and high-income earners will pay up to 2% higher income taxes for five years. No family making less than $500,000 a year will see their income taxes rise. In fact, fewer than 2% of California taxpayers will be affected by this increase.
• There will be a temporary ½ cent increase in the sales tax. Even with this temporary increase, sales taxes will still be lower than what they were less than six months ago.
• This initiative dedicates funding only to education and public safety—not on other programs that we simply cannot afford.
Max Whittaker/Getty Images
California Governor Jerry Brown announces his public employee pension reform plan October 27, 2011 at the State Capitol in Sacramento, California. Gov. Brown proposed 12 major reforms for state and local pension systems that he claims would end abuses and reduce taypayer costs by billions of dollars.
It's unclear what sort of unicorns-and-moneybags fairyland that officials in California were living in when they projected a $500-billion surplus in the 2011-12 budget. Against 12-percent unemployment and exposure to the housing crisis that ranks right alongside Nevada and Florida, any surplus at all was political and economic wishful thinking. So now come the trigger cuts — $2 billion of 'em.
Education will bear the brunt of this, if lawmakers can't figure out how to dodge the cuts. Not that education hasn't already been pummeled: according to Education Week, K-12 statewide has endured $18 billion is cuts over the past five years. The University of California and Cal State systems will also take it on the chin. Education Week says that some districts are in better shape than others, based on budget planning. But there are some time bombs out there, such as San Diego Unified.