California leaders say time for cuts may be ending
Wyatt Buchanan, Chronicle Sacramento Bureau
San Francisco Chronicle December 18, 2011 04:00 AM
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Sacramento --
California's dark days of budget deficits and severe spending cuts may be nearing an end.
Since the economic collapse in 2008, state leaders have seen a steep drop in tax revenue that had them jostling to keep public services intact in schools, universities, prisons and aid to the poor, disabled and sick. General fund spending has dropped by $17 billion since 2007 - from a high of nearly $103 billion - and the cuts continued as recently as last week when Gov. Jerry Brown announced another $1 billion reduction to programs serving California's 37.5 million residents.
And the Democratic governor warned the bad news wasn't over: Next month he'll unveil a budget proposal with yet more spending cuts.
But the state may be hearing the final drumbeats of this bad news. The ongoing deficit continues to shrink: At its worst it was $42 billion in 2009. Now it's projected to be $13 billion through the next fiscal year. A combination of more cuts in coming months along with Brown's proposal to ask voters to raise tax revenue next November could lift the state out of the red in the next 12 months, lawmakers and budget analysts say.
"I think that the governor and the Legislature - and the voters - have real opportunities this year to bring the budget as close to balance as we've had in over a decade," said Jason Sisney, deputy legislative analyst of state and local finance for the Legislative Analyst's Office.
Just in the past year, the governor and lawmakers have put a significant dent in the problem. In November 2010, the Legislative Analyst's Office projected that California would have budget deficits of around $20 billion per year over the next five years if the governor and Legislature did not take decisive action.
But lawmakers trimmed billions from spending and the economy has begun to slowly pick up. Last month, the legislative analyst projected future deficits at under $6 billion per year by 2016 absent any other action.
More action is sure to come. Brown last week said he would propose billions more in spending cuts when he proposes a budget next month for the year beginning July 1.
In addition to that, voters will be asked in November whether to approve tax increases worth $7 billion per year over the next five years, including in the next fiscal year.
The optimism is tempered by deep cuts to K-12 schools, higher education, social and health services, parks, and public safety since the state's budget was rocked by the economic collapse that began in 2008.
Unemployment, at 11.3 percent, remains above the national average of 8.6 percent and the Department of Finance projects that California won't return to pre-recession employment levels until 2016.
In addition, pending lawsuits on various spending cuts approved this year could enlarge the deficit, the economic recovery still is shaky and could be upended by actions in Europe, and the federal government could blast a major hole in state finances across the country depending on spending decisions by Congress and President Obama.
But a real discussion of when the cuts could stop is a new development at the Capitol that has not been heard in years.
California's dark days of budget deficits and severe spending cuts may be nearing an end.
Since the economic collapse in 2008, state leaders have seen a steep drop in tax revenue that had them jostling to keep public services intact in schools, universities, prisons and aid to the poor, disabled and sick. General fund spending has dropped by $17 billion since 2007 - from a high of nearly $103 billion - and the cuts continued as recently as last week when Gov. Jerry Brown announced another $1 billion reduction to programs serving California's 37.5 million residents.
And the Democratic governor warned the bad news wasn't over: Next month he'll unveil a budget proposal with yet more spending cuts.
But the state may be hearing the final drumbeats of this bad news. The ongoing deficit continues to shrink: At its worst it was $42 billion in 2009. Now it's projected to be $13 billion through the next fiscal year. A combination of more cuts in coming months along with Brown's proposal to ask voters to raise tax revenue next November could lift the state out of the red in the next 12 months, lawmakers and budget analysts say.
"I think that the governor and the Legislature - and the voters - have real opportunities this year to bring the budget as close to balance as we've had in over a decade," said Jason Sisney, deputy legislative analyst of state and local finance for the Legislative Analyst's Office.
Just in the past year, the governor and lawmakers have put a significant dent in the problem. In November 2010, the Legislative Analyst's Office projected that California would have budget deficits of around $20 billion per year over the next five years if the governor and Legislature did not take decisive action.
But lawmakers trimmed billions from spending and the economy has begun to slowly pick up. Last month, the legislative analyst projected future deficits at under $6 billion per year by 2016 absent any other action.
More action is sure to come. Brown last week said he would propose billions more in spending cuts when he proposes a budget next month for the year beginning July 1.
In addition to that, voters will be asked in November whether to approve tax increases worth $7 billion per year over the next five years, including in the next fiscal year.
Support for taxes
If both more cuts and more tax revenue happen - and a poll released last week showed strong support for the governor's tax plan - California could have no deficit and no more cuts to state programs in just one year.The optimism is tempered by deep cuts to K-12 schools, higher education, social and health services, parks, and public safety since the state's budget was rocked by the economic collapse that began in 2008.
Unemployment, at 11.3 percent, remains above the national average of 8.6 percent and the Department of Finance projects that California won't return to pre-recession employment levels until 2016.
In addition, pending lawsuits on various spending cuts approved this year could enlarge the deficit, the economic recovery still is shaky and could be upended by actions in Europe, and the federal government could blast a major hole in state finances across the country depending on spending decisions by Congress and President Obama.
A new discussion
Brown's next budget will include further cuts to spending, and if voters reject increased tax revenue, the governor has promised more cuts later next year. How much the governor wants to cut and when his administration projects that deficits will be behind California will be known when he unveils his budget Jan. 10.But a real discussion of when the cuts could stop is a new development at the Capitol that has not been heard in years.
"We're somewhere near the bottom of that hole and only history will tell us whether we're on the upswing or if we have a little bit further to go. Some of the history is going to be written by the decisions we make," said Assemblyman Bob Blumenfield, D-Woodland Hills (Los Angeles County), the chairman of the Assembly Budget Committee.
Blumenfield said his top objective is California's fiscal solvency and he will not say "no" to more cutting, but he said he doesn't think he can take much more.
"The cuts we've made are unconscionable and going further ... what's the word for 'beyond unconscionable?' It turns my stomach to think about it," he said.
California's tax revenue is growing, by about $5.3 billion since January, but that growth is not enough to pull the state out of its deficit because it is at a lower level than post-recession growth that the state experienced in previous downturns in the 1980s and 1990s, said Fred Silva, senior fiscal policy adviser for the group California Forward.
Silva has decades of experience with the state's budget and said spending cuts alone will not be enough for the state to eliminate its ongoing deficit.
"That is not going away until you deal with the revenue side," he said, adding that Brown's tax plan puts California "within shouting distance" of ending the shortfall.
Palmer noted that state aid to the poor was lower than levels seen in the 1980s, and cutting deeper has compounding effects.
"To do additional cuts on top of those is somewhat like a Richter scale," Palmer said.
Senate Budget Committee Chairman Mark Leno, D-San Francisco, said his constituents are upset about the years of cuts but have actually thanked him for working to stave off deeper reductions. He characterized the potential to eliminate the deficit as "stabilizing," because while it may mean no more cuts it doesn't mean pouring money back into services that have been slashed.
He noted that in 2007, before the economy crashed, the legislative analyst projected that revenue for the current year would be $125 billion, nearly $40 billion more than what it actually is.
Leno said this will be another tough year, but he sees a potential end in sight.
"That's certainly the hope and the goal, and that's only with the assumption that voters approve revenue on the next ballot," he said. "Short of that it will mean further destruction of public infrastructure."
Blumenfield said his top objective is California's fiscal solvency and he will not say "no" to more cutting, but he said he doesn't think he can take much more.
"The cuts we've made are unconscionable and going further ... what's the word for 'beyond unconscionable?' It turns my stomach to think about it," he said.
GOP opposition
Capitol Republicans, who can block tax increases in the Legislature because of the two-thirds mandate to raise taxes, maintain that the state is spending beyond its means and have opposed efforts since February 2009 to increase revenue. They also opposed the budget that was passed earlier in the year and criticized Brown for making the automatic midyear cuts last week.California's tax revenue is growing, by about $5.3 billion since January, but that growth is not enough to pull the state out of its deficit because it is at a lower level than post-recession growth that the state experienced in previous downturns in the 1980s and 1990s, said Fred Silva, senior fiscal policy adviser for the group California Forward.
Silva has decades of experience with the state's budget and said spending cuts alone will not be enough for the state to eliminate its ongoing deficit.
"That is not going away until you deal with the revenue side," he said, adding that Brown's tax plan puts California "within shouting distance" of ending the shortfall.
Compounding effects
The administration is not declaring an end to the tough times. H.D. Palmer, spokesman for the Department of Finance, referred to the legislative analyst's projections, with a shortfall of just under $6 billion in 2016, when asked about future deficits. That could mean the governor will not try to eliminate the entire problem this year.Palmer noted that state aid to the poor was lower than levels seen in the 1980s, and cutting deeper has compounding effects.
"To do additional cuts on top of those is somewhat like a Richter scale," Palmer said.
Senate Budget Committee Chairman Mark Leno, D-San Francisco, said his constituents are upset about the years of cuts but have actually thanked him for working to stave off deeper reductions. He characterized the potential to eliminate the deficit as "stabilizing," because while it may mean no more cuts it doesn't mean pouring money back into services that have been slashed.
He noted that in 2007, before the economy crashed, the legislative analyst projected that revenue for the current year would be $125 billion, nearly $40 billion more than what it actually is.
Leno said this will be another tough year, but he sees a potential end in sight.
"That's certainly the hope and the goal, and that's only with the assumption that voters approve revenue on the next ballot," he said. "Short of that it will mean further destruction of public infrastructure."
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