Tag Archive | "California budget crisis"

California budget craters yet again

Manic delusions of new revenue followed by the wet, cold fish of revenue shortfall. The California budget tragi-comedy continues. I could write articles about the ongoing California budget crisis by using cut-and-paste from previous articles because the same thing happens every year.

Here’s the scenario.

1) California faces an imminent budget crisis because, by law, a balanced budget must pass. But the money isn’t there. There is much gnashing of teeth.

2) The California State Legislature calls upon soothsayers, oracles, and other prognosticators who predict great new revenue streams coming into the state from heretofore unknown sources. There is great rejoicing in Sacramento as these new numbers show that the budget will indeed be balanced. The budget passes using the new revenue estimates.

3) The unthinkable happens. The pixie dust revenue fairy did not swoop in, sprinkling billions of dollars upon the state. Revenue estimates were not only way too high, instead there is – and no one could have predicted this – a gaping revenue shortfall and a new California budget crisis.

4) Repeat 1)-3) endlessly.

California State Controller John Chiang just announced that total State revenue for the month of November 2012 fell $806.8 million, or 10.8%, below budget. Democrats thought they could hammer “the rich” by convincing voters to pass Proposition 30 to create the highest state income tax in the nation. But it now appears that high income earners have already “voted-with-their-feet” by moving themselves and their businesses out of state, resulting in over $1 billion shortfall in corporate and income taxes last month and the beginning of a new financial crisis.

Posted in News

Jerry Brown and crossing party lines to save California

When Jerry Brown became governor of California in 2011 he disappeared from public view for six months, spending much time talking to Republicans, crossing party lines in an attempt to work out a grand deal on the California budget. It didn’t work.

The chasm is too great and the two sides are still very far apart. Meanwhile, the budget crisis worsens. California is billions short of what it needs to balance its budget.

Posted in News

California budget grows, makes big assumptions, ignores structural problems

The California budget is 5.6% larger this year than last year.  This no doubt comes as a surprise to most Californians who foolishly assumed that dire predictions of future financial problems coupled with already bludgeon-like spending cuts would mean Sacramento would be hard at work at making the budget smaller. But instead, it’s larger. Welcome to the Looking Glass World of the California Budget, where little is actually as it seems to be, and most everything is distorted too.

California legislators did pass a budget on time this year (so they will continue to be paid.)  Except, it’s not really a budget, it’s a $92.1 billion ‘spending plan,’ whatever that is. Governor Brown may veto it and more than two dozen additional bills remain to be passed. These bills will contain the details as to how the balanced budget mandated under California law will be enacted. Gosh, I’m guessing that most California families when making a budget would endeavor to work out the details before announcing they have a budget. But Sacramento is taking the high road, apparently wishing to avoid dealing with such bothersome details.

More on the California budget at IVN.

Posted in Politics

California budget crisis: Deficit now astronomical $16 billion

How much longer will California’s pretend-and-extend on the budget continue? Every year it’s the same tiresome fiscal train wreck, but nothing changes. The legislature continues its sleepwalking. No lasting solutions are found. The rot and dysfunction continues and worsens.

Californians may be startled to hear that those in other states increasingly view California as a laughingstock and the poster child for government dysfunction. Yes, things are that bad…and they just got much worse.

California Governor Jerry Brown announced huge spending cuts on Monday. California’s budget deficit is now $7 billion more than estimated and totals $16 billion. For some reason this huge increase, released as the “May Revise”, was deemed to be unexpected. Just like it is every year, Sacramento haphazardly attempted to balance the budget by making fictional estimates of projected income. But the projected income is a phantom, it doesn’t exist and never did. Now here we are a few months later, with the wet sandbag of reality whacking lawmakers upside the head. Sacramento is realizing it has yet another monumental deficit and no clue what to do.

More on the California budget train wreck on IVN.

Posted in News

Oops, Sacramento did it again as budget crisis returns


On November 8, Gov. Brown estimated that the coming California budget deficit would be $3.1 billion, while a leaked legislative memo set it at $5-8 billion. Yet, just a few days later on Nov. 17, the non-partisan Legislative Analyst’s Office said (PDF) the actual number would be $13 billion. I must confess that this Keystone Cops approach to governing and budgeting seems more than just a tad dysfunctional to me. Yet the same pattern happens year after year. After protracted budget negotiations, new sources of revenue are magically found which somehow (sort of) balance the budget. But then those new revenue estimates are found to be faulty, triggering yet another budget crisis, which is estimated to be small at first, but which then metastasizes into the fearsome Deficit Monster which must be appeased.

The difference this time is that all the easy cuts have already been made. For that matter, most of the hard ones have been made too. Plus, the deficit has ballooned so much that a devastating $2 billion in trigger cuts will likely be made in December. These are mandated by the previous budget agreement and will bludgeon spending for education, public safety, and other services. But education will bear the brunt, and will account for a staggering 85% of total trigger cuts. Conservatives say Democrats targeted education for the cuts so as to protect social welfare, but many of those programs have taken big hits too.

Senate President pro Tem Darryl Steinberg said there must be ballot measures to raise revenue, but such measures will be 12 months in the future and won’t help the budget now.

The report is disturbing:

  • Economic recovery is even slower than expected
  • LAO revenue forecast translates into $2 billion of “trigger cuts”
  • Estimated 2012-13 budget shortfall will be $13 billion, which includes a $3 billion deficit at end of 2011-12 and a $10 billion operating shortfall for 2012-13.
  • The estimate assumes no inflation (which is doubtful) and that existing trigger cuts and reduction remain.
  • Billions of state budgetary and retirement obligations will remain unpaid through at least 2017.

State worker pensions are handled by public pension funds; thus, those obligations aren’t generally factored into the state budget, even though the pensions can legally demand that the state make up any shortfalls. In other words, many state obligations may be off the books, but the state is still responsible for them anyway.

The projected deficit is smaller than last year, which is encouraging, but it is still immense. The coming trigger cuts will be proof of that.

(crossposted from IVN)

Posted in News

California cities facing major revenue shortfalls, rising pension costs

Vallejo is the poster child for what’s ailing California cities. It filed for bankruptcy in 2008, a victim of the real estate crash, losing a major employer in the process, and facing pension costs it cannot possibly meet.

Its police department was cut by one-third, and no longer has the resources to focus on low-level crimes like prostitution. Nor does the city have any regulations about medical marijuana dispensary. The result, rather obviously, is a huge increase in prostitution and marijuana sales.

“You know the only businesses in town making money? Pot and prostitution — that’s it,” says the operator of a dispensary who says his business is one of the few bringing foot traffic downtown.

Of course, legal marijuana and fewer cops tend to attract prostitutes, drug dealers, and their customers. This is becoming a major problem in the downtown area. Property values have plunged. Residents increasingly feel unsafe.

Neighborhood watch groups are trying to fill the gap as are other organizations. As city governments increasingly hollow out, they will be replaced by resilient communities, citizens banding together to do things. And indeed, in heartening news, it appears the people of Vallejo are doing just that. In the midst of a crisis, they’re saying, ‘We’re not leaving, Vallejo is worth saving.’

John Robb blogs about resilient communities extensively at Global Guerrillas, should you want to know more. At some point, we can no longer rely on the government and have to do things ourselves. That’s the primary point, and this may become less and less theoretical as cities fail to provide expected services. The alternative to such efforts is abandoned no-man’s-land-like parts of Detroit that effectively have no city services or protection.

Things aren’t as dire in other California cities (yet.) But even in Orange County, the home of fiscal conservatism, municipalities are getting devastated by vastly less revenue and the increasing awareness that they can no longer afford the public pension liabilities they’ve taken on.

The Orange County Register details the depth of the problems. In 2009-2010, twenty-three Orange County cities outspent their general fund revenues. This means they have to go into reserves, maybe borrow, and cut services. Many cities have already slashed budgets, but the worst may be yet to come.

The biggest problem for all of them is the cost of public safety, primarily escalating pension and health care liabilities, much of which are unfunded. That means they have no idea where the money will come from. Orange County cities and county agencies have an aggregate total of $8.75 billion in such unfunded liabilities. CalPERS handles most of the pensions and bills the cities for it, some of whom are borrowing to pay for it. Obviously, this is not sustainable or financially sound, even if the interest rates are lower than what CalPERS charges. Further, while cities can choose to pay off all their unfunded liabilities, few do. This means they fall a little further behind each year.

Interestingly, the cities in Orange County that are fiscally sound are those like Laguna Niguel, which outsources practically everything and has little pension debt and six times that debt in reserve. While outsourcing is certainly controversial, it does allow a city to be run on a tight, lean basis, with pension liabilities off-loaded onto someone else.

Like it or not, outsourcing could be a future model for California cities.

(Crossposted from CAIVN)

Posted in News

California’s new budget. Pretend and extend

Jerry Brown promised no gimmicks or bogus accounting on the budget. Instead, that’s precisely what California got.

From my latest on CAIVN.

Apparently, $4 billion in unexpected new revenue for the State of California materialized out of thin air right in time to be counted for the budget that just passed. But Gov. Brown and the Democrats didn’t get the sales tax extension that they wanted, so sales tax will drop one percentage point and car registrations one-half of a point on July 1.

More than a few outside observers think the $4 billion increase in expected revenue is unrealistic, especially considering that the economy is stagnant. The California legislature does indeed have a long and tiresome history of making overly optimistic revenue estimates only to have them shattered by the cold, cruel hammer of reality. Maybe this time will be different, based on historical precedent, it probably won’t.

Posted in News

Californians favor modifying Three Strikes, moving state inmates to local jails

Voters agree with Gov. Brown’s plan to transfer low-risk state inmates to local jails in order to comply with the recent Supreme Court ruling on overcrowding in state prisons. However, they don’t want to pay any extra taxes to do it. They also overwhelmingly say that the current Three Strikes law should be amended to give judges more leeway in sentencing, as this could ease prison overcrowding. These findings come from a Field Poll released on June 16.

The US Supreme Court, after years of lawsuits and appeals, said California state prisons are so overcrowded that they are unconstitutional, provide substandard health care, and are hazardous to guards as well as inmates. They ordered that the inmate population be reduced by 30,000 within two years. However, as is often true with federal government mandates and court decisions, funding the cost was left to the state. Gov. Brown wants to raise taxes or extend current increases to pay for this, but voters oppose both plans. Republicans, Democrats and Independents all oppose a tax hike while Republicans and Independents also oppose extending tax increases, something Democrats favor. But taken as a whole, voters oppose extending tax increases 48-44.

The thinking here is muddled. If the state doesn’t pay for transferring the inmates, then the municipalities will. This cost will surely be passed onto taxpayers one way or another. So if taxpayers manage to avoid new state levies to pay for the transfers, they will end up paying for them on the local level anyway. You can’t relocate and then house 30,000 inmates without someone paying for it. Ultimately the cost will be paid by taxpayers.

More on CAIVN.

Posted in News

California controller halts legislator pay because budget bill not balanced

Democratic lawmakers are very sad that the bad ole Controller is making them follow the Constitution

[California] Controller John Chiang announced today he has blocked pay for lawmakers, rejecting his own party’s spending plan as insufficient to satisfy a voter-approved law on timely budgets.

Good. Maybe the reality of no pay will force California legislators off their dead asses and get them to take genuine action on the budget. Democrats passed a garbage budget recently which was quickly vetoed by Democratic governor Jerry Brown. It was unquestionably passed simply so they could get paid even though they knew it wasn’t balanced. Now the Controller, who is also a Democrat, has called their bluff. It’s important to note that legislator pay is forfeited not just suspended until a balanced budget passes.

The bulk of California legislators are not independently wealthy so this puts real pressure on them. Good. Unsurprisingly, Democratic lawmakers are whining about how dreadfully unfair it all is. Imagine, the bad ole Controller is making them heed the Constitution. Oh the horror. Republicans, who generally favor a balanced budget anyway, can’t do much except soldier on and try to get it passed ASAP.

Posted in News

Gov. Jerry Brown predicted his California budget veto in March

“I put up an all-cuts budget. Then the Democrats change [the all-cuts budget] and put in gimmicks. Then I veto it. Then everybody sits there until we run out of money. It’s not going to be a pretty sight. It’s like one-two: No tax, all cuts, gimmicky budget, veto, paralysis.”

This is what Gov. Brown said in an interview with George Skelton of the LA Times on March 10, showing remarkable political insight. Brown wasn’t speculating in the interview. Rather, he was predicting “without hesitation”, says Skelton. Events have shown him to be accurate. He did indeed veto a flimsy budget. So, since he was correct about the veto, what he predicted will happen after the veto should concern us all.

“There’ll be an unleashing of left and right forces. Everyone will come out fighting. California will become a battleground…. It’ll be a war of all against all. The loser will be the people of California.”

Ballot initiatives will become a huge battleground, with tax measures from Democrats, and anti-union and anti-public sector measures from Republicans. Few if any of these measures will have much interest in helping California as a whole but rather are aimed at bolstering certain constituencies and attacking others. In a remarkable coincidence, the constituencies being bolstered by such initiatives are also those who give the most money to politicians and lobbyists supporting the initiatives. I knew you’d be shocked.

Democratic lawmakers appeared to be gobsmacked by the budget veto, and it is likely that relations between them and Gov. Brown will become increasingly strained as it sinks in that he, as always, is a maverick who doesn’t move in lockstep with them. But, if Brown accurately predicted his veto, then it seems odd that lawmakers didn’t see it coming too. Maybe they did, suggests Dan Walters. Maybe the whole house of cards budget was passed by the deadline with the express purpose of ensuring that legislators will be paid, even as they knew it would probably be vetoed.

A new state law mandates that legislators not be paid if a balanced budget doesn’t pass by June 15. Brown says the budget wasn’t balanced. Controller John Chiang is charged with making the final decision, and he seems to be hedging. “If Chiang pays legislators, the rejected budget will look like a giant charade by Democrats to evade the law,” said Walters. It would also be a new low in sleaze by a legislature that has never shown much interest in working for the needs of Californians as a whole.

In the LA Times interview, Brown stated that the intransigence of some Republicans is also a major stumbling block at working towards a budget.

Some Republicans want paralysis. They want to blow it up. They’re in a minority, but they’re very vociferous. They’d like to see government implode. That’s where we’re headed. I’m trying to pull us back from the brink.”

Is the brink where California wants to go? If not, then they need to act fast to prevent it.

(crossposted from CAIVN)

Posted in News


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