LAO: CA Fiscal Outlook Still Dismal

The outlook on the state’s budget is no better today than it was last May. The Legislative Analyst’s Office reported yesterday that state revenues will fall far short of budgeted revenues, guaranteeing that billions of dollars in “trigger” cuts will be enacted, just as the Legislature planned in the budget passed in June.

Of the trigger cuts to be made, K-12 education spending will be impacted again, as will higher education and health and human services.

“The grim news today from the Legislative Analyst that California is facing yet another $13 billion budget shortfall, is sadly the byproduct of the fiscally irresponsible majority vote budget scheme passed by Democrats,” Assembly Republican Leader Connie Conway said in a statement. “Had the Legislature chosen the path of the Assembly Republican roadmap to balance the budget and fully fund our schools without raising taxes, K-12 and higher education would not be on the brink of further devastating cuts today.”

Trigger cuts to K-12 schools could mean shortening the school year in some districts by as many as seven days. However, collective bargaining could hamper the process.

Legislative Analyst Mac Taylor said today in a press conference that many school districts have already shortened the school year one to five days.

But within minutes of the press conference, some legislators were already calling for reopening the budget process in order to avoid the trigger cuts to education. “Today’s numbers make it clear that the state’s first priority must be to get to the ballot in November and raise needed revenues to avoid any more damage to Californians. The notion of cutting deeper into education, public safety and services for those in need is unthinkable,” said Sen. Pres. Pro Tem Darrell Steinberg, D-Sacramento, in a press statement.

Even though it was legislators who put the trigger cuts into the budget, the calls to avoid the cuts demonstrates that they were only kicking the can down road once again. Many say that the budget was smoke and mirrors, a little shuck and jive, accounting tricks and budget gimmicks.

“Rather than pulling the trigger on hundreds of millions in additional painful cuts to our public schools, the Legislature should instead look to repeal spending increases in the Democrat budget,” Conway said.

Trigger Cuts

Taylor was measured in his presentation, but did not mince words when he said that revenues in the state will be $3.7 billion below the amount in the 2011-12 budget. This budget year shortfall creates the need for $2 billion of midyear cuts, known as the “trigger cuts.”

Two levels of trigger cuts are in place: Trigger 1 includes additional large cuts to higher education, health and human services, corrections, child care, libraries, and Medi-Cal. Trigger 2 cuts will be in Proposition 98 reductions. School funding, including higher education, represents more than 85 percent of the proposed trigger cuts.

“In an effort to protect social welfare programs, the Democrats crafted the trigger to focus primarily on schools,” said one Capitol source who asked to remain anonymous.

Had the Democrats not excluded $5.1 billion of state sales tax revenue from the Proposition 98 calculation, schools would be owed nearly $400 million more than the adopted budget, even if the trigger cuts occurred, according to the Capitol source.

Schools Shortchanged

It appears that Democrats crafted a budget that shortchanged schools by $2.1 billion, and allows for them to be reduced up to an additional $1.8 billion. The final adopted budget included spending increases to many health and welfare programs, well above the Gov. Jerry Brown’s proposed January spending level.

Spending increases included the restoration of grants to welfare recipients totaling more than $500 million. There was a restoration of in-home domestic and related services for recipients provided by family members, at a cost of $236 million. And a large scale welfare information technology system for Los Angeles was restored, costing taxpayers $13 million.

“I thought then and feel the same way now, that it was more important to get the budget right than fast,” said Assemblyman Anthony Portantino, D-La Cañada Flintridge, in a statement. “Unfortunately, fast was the order of the day and I voted “no.””

The LAO found that California will receive less sales tax because of the Amazon tax issue delay, and less corporate taxes because of the single sales tax loophole that has not been addressed.

Taylor said that the Legislature made some tough decisions during the last round of budget talks, which staved off a worse deficit.

The report warned that the state may have to reconsider the restoration of prior-year cuts to health and social services. Those cuts are set to expire in the 2012-13 budget year.

Many legislators are already talking about “revenue increases,” and this was addressed in the LAO report. “The Governor has stated his desire to have certain increases in as yet unspecified taxes on the November 2012 ballot. We would recommend the Legislature continue to review tax expenditure programs and reconsider various proposals from last year, such as modifications to enterprise zone programs, and passage of a mandatory single sales factor of corporate profit appointment,” the report states.

Anticipated economic growth, largely due to tax reductions, is not enough to offset the 12 percent growth in state spending. “This underscores the fact that our budget problems are better solved through economic growth, not double-digit spending increases fueled by massive tax hikes,” Conway said.

Taylor said that, while the Legislature faces a much smaller budget problem than they had forecasted one year ago, there are no easy options for balancing the state’s budget.

“It’s unfortunate that our prediction in July that there would be a $13 billion shortfall was right on target,” said Sen. Minority Leader Bob Dutton, R-Rancho Cucamonga. “Anyone could have predicted that it would take Legislative Democrats less than five minutes to say they plan to sidestep the trigger cuts they voted for and raise taxes instead.”

(Katy Grimes is CalWatchdog’s news reporter. Grimes is a longtime political analyst, writer and journalist. This article was first posted on CalWatchdog.)

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