We already knew it was going to be a problem because the last budget passed was largely smoke and mirrors covering up a deficit as high as ten billion dollars. But now we know it is much worse than that.
According to the Legislative Analyst’s Office, a non-partisan agency that scrutinizes the state budget, “Our forecast of California’s General Fund revenues and expenditures shows that the state must address a budget problem of $25.4 billion between now and the time the Legislature enacts a 2011-12 state budget plan.”
The report states, “The budget problem consists of a $6 billion projected deficit for 2010-11 and a $19 billion gap between projected revenues and spending in 2011-12. Similar to our forecast of one year ago, we project annual budget problems of about $20 billion each year through 2015-16.”
“We continue to recommend that the Legislature initiate a multiyear approach to solving California’s recurring structural budget deficit,” the report reads. “In 2011-12, such an approach might involve $10 billion of permanent revenue and expenditure actions and $15 billion of temporary budget solutions. In 2012-13, 2013-14, and 2014-15, another few billion of permanent actions each year could be initiated, along with other temporary budget solutions, and so on until the structural deficit was eliminated.”
On top of that, solutions that were used previously are not longer available to state lawmakers. “I think it’s going to be much, much more difficult than last year,” said Legislative Analyst Mac Taylor said at a news conference yesterday.
“Clearly, they adopted some solutions that I think they knew – and most people knew – were risky. I don’t think people are shocked that we are going to end the year with a deficit. I think people may be surprised a little bit about the magnitude of the total number,” Mr. Taylor continued.
Incoming Governor Jerry Brown knew that this was going to be a challenge. He has already vowed not to raise taxes without voter approval.
“The governor-elect is acutely aware of the challenges our state faces and met with Department of Finance officials last week to start work on a budget that will require a great deal of sacrifice,” Brown spokesman Evan Westrup told the press on Wednesday.
One tool that the Governor will have at his disposal is that the legislature, so long as they do not raise revenues, can approve the budget with a majority vote.
But already he will be challenged.
The current deficit projection assumes receipt of the constitutional minimum in the next fiscal year – which is $2 billion less than this year.
According to the LAO report however, “additional savings from Proposition 98 will be very difficult.”
They argue, “Because the Proposition 98 minimum school funding guarantee is affected by this drop, our budget forecast already reflects a $2 billion fall in the minimum guarantee between 2010–11 and 2011–12.”
The report continues, “This reduction would come at the same time that school districts exhaust the billions of dollars of one–time federal money they have received through the stimulus program and other legislation.”
Here is the kicker, they will have to cut billions to schools without having it impact the current budget deficit. Writes the LAO, “For these reasons, it may be very difficult to achieve substantial additional budget reductions in Proposition 98 in 2011–12, compared to the levels already reflected in our forecast.”
They summarize, “In other words, if the Legislature funds schools at our projected minimum guarantee in 2011–12, it would mean billions of dollars in programmatic cuts to education but not contribute a single dollar to closing the $25 billion budget problem.”
On Monday we said education was in a state of emergency. It is so much worse than that now.
Already DJUSD was looking at a $3.5 to $7 million deficit, but that was before the projected deficit for the state doubled.
Already, UC was talking about another 8 percent fee hike.
Already, CSU is discussing another 15 percent fee hike.
Now what?
“The state faces a basic choice: begin to address today’s huge, frustrating budget problems now . . . or defer the state’s budgetary and policy problems to future Californians,” the LAO argues.
However, the problem has been the patchwork of temporary fixes hoping to punt the ball down the field in hopes that either it becomes someone else’s mess or the economy will rebound and fix itself.
Writes the LAO, “The Legislature and the new Governor will be tempted in the next few years to continue patching over the budget problems with temporary fixes. Unless plans are put in place to begin tackling the ongoing budget problem, it will continue to be difficult for the state to address fundamental public sector goals—such as rebuilding aging infrastructure, addressing massive retirement liabilities, maintaining service levels of high–priority government programs, and improving the state’s tax system.”
According to the LAO, now is the time to fix the budget problems, “One major reason to stop passing the state’s problems to future Californians is that the state’s long–term fiscal liabilities—for infrastructure, retirement, and budgetary borrowing—are already huge.”
The problem is these delays increase costs. Writes the LAO, “The costs of paying down these liabilities already are reflected, to some extent, in the state’s recurring deficits, but these costs will only grow in the future. By deferring hard decisions on how to finance routine annual budgets of state programs to future years, the state risks increasing further the already immense fiscal challenges facing tomorrow’s Californians.”
One solution that the LAO recommends is a multiyear approach to the budget. “We continue to recommend that the Legislature initiate a multiyear approach to solving California’s recurring structural budget deficit,” they write.
“The solutions needed to balance the budget will mean unavoidably painful sacrifice by today’s Californians. The benefit of this sacrifice would be putting the state on a sound fiscal footing. That sound footing may allow future Californians to live in a place where the annual state budget process is a chance to improve government’s ability to serve its residents,” the LAO concludes in its summary.
For local government and Californians, this is a crisis that will not end.
—David M. Greenwald reporting
As said many times, this is a third inning budget in a nine-inning game and the pain to make changes is just put off. Like an untreated illness, it may all sound good – i.e. the state has a budget – but the continuing failure to treat the spending disease will only make the eventual adjustments that much more difficult.
Unfortunately, while its painful to embrace it, many of the pensions that have been promised by state and municipal governments in this state (and country) have been promised fraudulently by politicians with no prudent plan for funding them – as we would require a corporation to fund its future obligations. Thus, ethically, no one is really on the hook. Its all a guilt play.
Math will eventually win.
Third inning sounds about right. At some point this stops becoming news. (Is it then olds?)
THe smart thing for Jerry to do is take a page out of Reagan’s 1980 playbook and inflict pain early on in his term (in Reagan’s case it was mostly in the form of Paul Volcker, the Fed chair, tightening interest rates–and I think it was the right thing to do though I am not a Reagan fan).
Expect cuts soon. A friend of mine who is about Jerry’s age and remembers his governorship well (and not fondly) pointed out that Jerry was not a friend to higher education.
And he ought to enforce the sales tax on out of state sales (e.g., Amazon). Technically this is not raising taxes I guess.
Happy Veteran’s Day.
This problem was at least 25-40 years in the making and will take that long to adequately address. It will involve cutting expenditures; whose “ox is gored” and in what form “free-market capitalism” survives are the political questions of the future. The era of American Exceptionalism is over as the fact that we were the only industrialized power left standing after WWII has finally run out of steam. The future holds significant depreciation in the value of the dollar and its primacy as the international benchmark currency. A gradual but ultimately significant decrease in the vale of the dollar as against the Chinese Yuan will address much of the problem of our debt to China as it can be paid with dollars rolling off the printing presses. Decreasing currency value rather than raising taxes has always been the road taken by Western Democracies that rely on voter approval as it is a stealth form of non-progressive taxation.
I think this is the link to the LAO report referenced in this article:
[url]http://www.lao.ca.gov/laoapp/PubDetails.aspx?id=2365[/url]
[quote]Decreasing currency value rather than raising taxes has always been the road taken by Western Democracies that rely on voter approval as it is a stealth form of non-progressive taxation.[/quote]
Davisite2: THe Euro and Yen have increased against the dollar, but your larger point is well taken. Gold has surged along with other commodities. Buy timber (but don’t burn it in your fireplace!)
California has a unique set of issues as well. We are expensive. Republicans blame high taxes but a large part of it is just the high cost of living. David is absolutely correct that state and local pensions are a huge problem and while the Federal govt can run deficits and wait for Uncle Ben to buy our treasuries thorough QEII, this hasn’t happened yet with municipal bonds, though there are rumors that the Fed could buy Munis at some point.
By now its almost a cliche to say we are in a long term decline. I hope we get our act together but right now my money is on gold.
[quote]David is absolutely correct that state and local pensions are a huge problem[/quote]
Add unemployment insurance, Social Security and Medicare…
I was focusing on State issues though obviously national issues are a backdrop. I could have added Medical though. Our entire entitlements system will have to be overhauled.
I meant Medi -Cal
So the deficit reduction committee is putting forward taking away the mortgage interest deduction. How does everyone feel about that? Do you think it will cause another housing crash if it goes through? How about homeowners who bought knowing that the interest deduction made their house affordable?
Also being floated is a means tested Social Security program. For instance, if you have over $50,000 in income your benefits will be reduced or cut off. I’ve also heard that they might look at one’s assets, IRA’s, 401k’s, savings…..
If you have too many assets you might also get cut off. Let’s say someone invested heavily into their 401k while working and shunned buying cars or taking lavish vacations, should that person lose out on SS benefits because they chose to save for retirement?
To Rusty: Heard a Tea Party advocate rant on about cutting entitlement programs like Medicare, but she drew the line at Social Security bc her 80 year old mom would have been effected. The Tea Partier said she’d be darned if her mother was going to forgo SS benefits she earned over the years. It was hers, and should not be taken away. Yet she had no problem with the idea of cutting Medicare. Many seniors came out in droves bc they are upset Obamacare is cutting Medicare benefits, and they don’t want Medicare touched. What a mess this is going to be to clean up… no easy answers…
We are truly “the Lindsey Lohan State”, and it looks like we will be in and out of economic rehab for a long time!
The CA-Dems might consider levying a tax on silicon executives…and their assets for that matter (the real wealthy execs–Jobs,Ellison, Google gurus, etc–don’t need a salary). Include other CA oligarchs (in entertainment, law, medicine real estate, etc). Then order Jerry B to sign it. That’s of course too simple and non-bureaucratic for the Dinkocrats (and/or the yacht club aka GOP )
Prop 13 should be scrapped as well
(in CA Neo-nazi-watch News, Davis’s own Byronius Belchamy, the mormon-nazi-t-shirt- salesman-who thinks- he’s a-liberal has taken to quoting his favorite sections of that rightist pop-history classic, Rise and Fall of the Third Reich:[url] http://new-worlds.org/blog/?p=8227 [/url] His fellow brownshirt-wannabe and psychotic McKinnon (as in L-ron) apparently won’t permit Mein Kampf right now…so the usual bogus bloviating)
[quote]Let’s say someone invested heavily into their 401k while working and shunned buying cars or taking lavish vacations, should that person lose out on SS benefits because they chose to save for retirement? [/quote]
To many of those making the recommendations, YES. Not necessarily dissimilar to those who would lower compensation/retirement for professionals in order to ensure that there would be no cuts for janitors.
ERM: Many seniors came out in droves bc they are upset Obamacare is cutting Medicare benefits, and they don’t want Medicare touched.
But also it seems like a few new Medicare benefits kick in next year:
[url]http://www.npr.org/blogs/health/2010/08/10/129105474/medicare-will-soon-make-prevention-easier-but-exercise-will-be-up-to-you[/url]
Elaine… please remember that current SS beneficiaries will primarily be ‘paid’ by those currently working… they will, on average, receive far more in benefits than they AND their employers ever paid into the system…the greatest Ponzi scheme ever invented.
This article was also in the Sacramento Bee today , good cut and paste job !
“To many of those making the recommendations, YES. Not necessarily dissimilar to those who would lower compensation/retirement for professionals in order to ensure that there would be no cuts for janitors.”
Amazingly alot of people see it that way. What our society is teaching is spend all you’ve got right now, refinance your house to the hilt and buy those toys now because you’ll get bailed out in the end. To those who saved intead of lavishing themselves with goodies the hell with you, you lose your SS and get less of the pie because you stupidly planned for the future.
ERM: Heard a Tea Party advocate rant on about cutting entitlement programs like Medicare, but she drew the line at Social Security bc her 80 year old mom would have been effected. The Tea Partier said she’d be darned if her mother was going to forgo SS benefits she earned over the years. It was hers, and should not be taken away. Yet she had no problem with the idea of cutting Medicare.
I wonder if this 80 year old mother may actually be using Medicare but her daughter doesn’t know it.
There is a disconnect over what the government does and how much it really costs. If you’re going to reduce government spending, then you really need to cut jobs and services and not borrow. That’s where conservatives/Republicans lack some spine in their position. They have taken claim for cutting back on taxes but have allowed borrowing and other dishonest financing. Politically they’re saying we can have our cake and eat it, too.
Personally I think there are many government services worth keeping and financing honestly, but financing honestly may mean you have to raise taxes, and that concept is kryptonite for most Republicans to accept.
Steve Hayes: “We are truly “the Lindsey Lohan State”, and it looks like we will be in and out of economic rehab for a long time!”
Love this characterization! LOL
wdf1: “But also it seems like a few new Medicare benefits kick in next year…”
Yes, meaningless benefits at the expense of the frail elderly who need meaningful benefits. Secondly, so much of the new Medicare benefits like preventive screening tests are useless. Remember the scandal over PAP smears? I personally have had so many “preventive screening tests” I now glow in the dark! I started to refuse some of them…
hpierce: “Elaine… please remember that current SS beneficiaries will primarily be ‘paid’ by those currently working… they will, on average, receive far more in benefits than they AND their employers ever paid into the system…”
From boortz.com: “The truth is, though, that Social Security became a glorified Ponzi Scheme in the 1960’s when Democrat politicians, with no small amount of help from the Republicans, came up with the bright idea of taking the money out of the Social Security trust fund and using that money on various vote-buying programs. They left IOUs behind .. and now those IOUs are being presented to the American taxpayers. We don’t have the money cover them. Something is going to have to give here … sacrifices are going to have to be made, and we can’t ask our senior citizens to take this bullet. We are the ones who allowed the politicians to steal this money … and now we pay for our lack of due diligence. Now we pay for electing these fools year after year and never holding them accountable for what they were doing. If it takes means testing, then means testing it is. A lot of people have given up a lot more than this to protect and save our country.”
The problem is the SS fund was raided by politicians, who never see a tax dollar they don’t want to spend…
wdf1: “There is a disconnect over what the government does and how much it really costs. If you’re going to reduce government spending, then you really need to cut jobs and services and not borrow.”
I would agree. However there is also a disconnect over what the gov’t costs and how much of the tax dollars it really wastes. Too many of our tax dollars are wasted – the money gets sucked up into the gov’t bureaucratic vortex. Example – MD county exec makes $180,000 a year, but yet he has a $300,000 a year security detail, and that sort of nonsense.
Elaine… perhaps the ‘facts’ you quote exacerbated the problem… the TRUTH is that Social Security was basically a Ponzi scheme SINCE ITS INCEPTION… look at history and look at the fact that SS was paying out benefitsd from the “get-go”… there are many who are blind to the facts when they don’t fit with their world view.
hpierce: “Elaine… perhaps the ‘facts’ you quote exacerbated the problem… the TRUTH is that Social Security was basically a Ponzi scheme SINCE ITS INCEPTION… look at history and look at the fact that SS was paying out benefitsd from the “get-go”… there are many who are blind to the facts when they don’t fit with their world view.”
Had the gov’t left SS alone from its inception, and invested that money, it probably would have paid for itself. But we will never know, bc the gov’t has raided SS over the years, gutting it…
Yes, meaningless benefits at the expense of the frail elderly who need meaningful benefits. Secondly, so much of the new Medicare benefits like preventive screening tests are useless.
Wow, Elaine. I’m surprised at your dismissive reaction, especially to the annual physicals. My one visit to the doctor most years is my annual physical. I’m usually just fine, but the blood work sometimes suggests some slight adjustments in my diet and lifestyle. My elderly parents have valued their annual physical tremendously. I think the physicals have probably kept them out of most major medical trouble up to this point.
But I know in an earlier thread that you felt that a broad health insurance program really ought to be focus on major medical (after the stage 3 tumor, the heart attack, the broken hip, or stroke), perhaps as opposed to a preventive/wellness strategy. In another context, I prefer to brush, floss and have the regular cleaning, rather than pay for the root canal. As you often like to say, perhaps we have to agree to disagree. 😉
If I misunderstand something, please straighten me out.
To wdf1: I am not against preventive care per se. What I am against is many of the screening tests that are merely there to pay for the doctor’s new equipment or to make money for the doctor. And screening tests that are of questionable value. And screening tests that if overdone can actually be harmful. I’ll give you a specific example.
There is a push by doctors to have every patient undergo a yearly colonoscopy after the age of 50. This test is invasive, potentially dangerous (potential for perforation, catching Hepatitis among other things), and if done too often can be deadly. I can understand putting someone through this test on a yearly basis if they have a history of colon cancer in the family, or have inflammatory bowel disease (IBD) that is intractable, but not otherwise.
A friend of mine was given this test too often, and it nearly killed her. I advised her to “just say no” to the doctor, which she did. Interestingly enough, as soon as she stopped undergoing the repeated colonoscopies, she started feeling a lot better.
I ran a support group for IBD, so I know of what I speak… you would be shocked at what the medical profession sometimes puts patients through. Frankly, if they had to undergo these tests themselves, I doubt they would be so anxious to prescribe them…