Some explanations for California’s ongoing budget problems
For the first time in four years, California does not expect a budget shortfall in the coming fiscal year, thanks to unexpected tax revenue pouring into the state this year.
But a $6 billion deficit is expected to return during the 2007-2008 fiscal year, with continued deficits anticipated for the next several years. Here are some of the central reasons why state government has so much trouble living within its means:
MANDATED SPENDING As much as 70 percent of spending in California’s budget is mandated through federal law, court order or voter initiatives. Even if lawmakers had the will to cut, most of the reductions would fall disproportionately on specific programs. Some of those smaller pieces of the budget pie are considered critical such as certain law enforcement, parks and recreation, and public health programs.
PROPOSITION 98 A constitutional amendment approved by voters in 1988, Proposition 98 requires the state to provide a minimum funding guarantee for kindergarten through 12th grade schools and community colleges. Schools receive about half of general fund spending most years. If the state is unable to meet its obligation, debts to schools must be paid back when better times return. A measure aimed at cutting the funding guarantee, Proposition 76, was overwhelmingly rejected by voters in the November special election.
AUTOMATIC INCREASES By law, spending in some parts of the budget automatically increases when revenues do. When the state emerges from tough economic times and tax income rises, the state is required to spend more rather than use more of the new income to pay off debts.
PAST MISTAKES The recent round of deficits dates back to mistakes made during the boom years of the late 1990s and early 2000s. Huge increases in tax income prompted lawmakers and then-Gov. Gray Davis to boost spending by $20 billion between 1998 and 2002.
Instead of spending that money on one-time projects such as road construction or grants much of it went to expand or create programs with ongoing costs. The additional revenue expanded health care benefits for the poor and funding for public schools, expenses that carried into the future.
Cutting those expenses once the economy soured proved politically problematic for the Legislature. Lawmakers instead decided to borrow money, eventually leading to a dramatic drop in California’s credit rating, among the worst in the nation. Payments on the debt cost $3.5 billion a year about as much as the state spends to fund the University of California system.
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Source: Legislative analyst, department of finance, treasurer’s office.