Today, after 93 days of wrangling, horse-trading, arm twisting, and deal making, California is poised to approve a budget agreement to close the state's $19.1 billion budget deficit. To call the budget ugly would be an understatement. As Shane Goldmacher of the Los Angeles Times reports, the budget will fall out of balance "almost the moment the ink is dry."
Although the deal was reached late last week, we are only getting details now. The "public hearing" on the agreement, which authorizes $87.5 billion in spending, took place yesterday and lasted less than an hour. No public testimony was heard. All that has been made available thus far is an eight-page outline of the agreement. You can read the full details here.
While the budget writers deserve praise for avoiding broad-based tax hikes (an income tax hike and a tax on energy production were both discussed and promoted earlier this summer), the budget deal is otherwise a mess. It relies mostly on assumptions, delayed payments, and borrowing to balance the books. For example, the budget assumes that Congress will provide $5.3 billion to help reduce the size of the budget shortfall. But only $1.3 billion of that aid has been approved so far. Moreover, the budget assumes $1.4 in increased revenues, despite the fact that the Rockefeller Institute for Government reports that state revenue collections are still below prerecession levels.
The agreement's largest "cut" in spending is $3.1 billion in suspended education funding guarantees. However half of that cut is actually a deferred payment until the next fiscal year. Additionally, the agreement suspends about $9 billion in business tax relief and borrows $2 billion from other state funds.
One positive development is a provision in the agreement to eliminate a pension boost for future state workers that was approved during the dot-com boom, when the state's coffers were flush. Current workers will also have to contribute more to pension plans. It will save an estimated $1.5 billion for the state and taxpayers. But more can be done with regards to containing pension costs.
Although I realize nothing in life is perfect, this is an ugly budget, riddled with problems the state will have to address again soon. California needs fundamental budget and tax reform if it is to avoid these chronic deficits in the future. Let's hope that the next crop of leaders in Sacramento realize that.