Governor Brown releases his revised budget plan for California on Monday. He’s already warned that it’ll include more cuts to state programs. Disappointing tax revenues have pushed California deeper into the red by as much as 13-billion dollars. Brown’ plan to close the gap is also likely to use “other solutions” to generate more revenue. For the California Report, KPCC’s Julie Small examines how realistic they may be.
The practice of patching the state budget deficit with less-than-realistic projections of revenue has become a bad habit in Sacramento.
Mike Genest would know. He worked on plenty of state budgets when he was Governor Schwarzenegger’s finance director. It was his job to make the numbers work – even if they didn’t.
"In our administration, we made plenty of proposals that were just barely, if at all, plausible in terms of what revenues would be generated by certain policy choices," said Genest." Take the budget of 2008 when Schwarzenegger ordered furloughs — unpaid days off — for state workers. Genest says he told the governor that was a bad idea, and that it would be better to cut every state worker’s pay by 15 percent.
In that case the numbers would work, but Genest says the politics wouldn’t. The state employee unions wouldn’t go for pay cuts. Neither would Democrats in the legislature. Furloughs won out. "So we did what I think even the governor thought and certainly some of the other top political people in the administration thought was a stupid thing to do, but it was the smart thing to do because it was the only thing we could do in the face of the incredible power of unions." said Genest."
Genest says political pressure drives each and every budget decision.
Last year, economist Chris Thornberg says political pressure drove the governor’s to project an extra $4 billion in revenue. "They had a reasonable revenue forecast that, from our perspective, fit with the ongoing slow but steady recovery," said Thornberg. "But they couldn’t come up with a budget deal with that forecast - so they dove into the land of imagination and they imagined $4 billion of revenue." The tax revenues fell short—worsening the state’s deficit.
Some of the ideas being floated to help close this year’s budget gap include that the state could rake in $2 billion if it sells off the assets of the redevelopment agencies lawmakers dissolved this year. A “cap and trade” exchange that will start selling carbon credits this fall could make $3 billion, a tax windfall from the expected sale of Facebook stock options next week could generate another billion.
But the estimates of the revenues all that would generate vary widely. The "cap and trade" exchange is untested and the market hasn’t even opened yet. Facebook revenue depends on the behavior of investors, which is highly unpredictable.
Democrats are counting on California voters to pass the governors’ tax initiative in November. That would bring in $9 billion to help balance the budget, and automatic cuts would kick in if the measure fails. Senate Pro Tem Darrell Steinberg says lawmakers have cut $22 billion from the state budget in the last few years.
"The decisions and the cuts that we have already made, make the next set of spending reductions, of cuts, even more difficult, but we won’t shy from it and we will do what we have to do here," said Steinberg.
Republicans oppose any new taxes. Senator Bob Huff says they’ve offered their own plans for tackling the deficit without new taxes. Democrats have ignored it.
"Why take the pressure off of needing to raise taxes?" asks Huff. "Because if the song sheet we want to sing from says our only solution is to raise taxes you’re not going to enact any other solutions that takes away from that mantra."
Once the governor releases his revised budget on Monday, the legislature will hold hearings on the proposals, accept some, offer alternatives for others, debate and finally vote to pass budget that balanced—at least on paper.