Phantom $4-Billion Haunts the Budget

The $4-billion dollars that was added to the budget last June, based solely on optimism that economic conditions would improve, and brought the budget into balance on paper (and, by the way, got the legislators paid) never showed up. The Legislative Analyst’s Office issued a report yesterday that says the state is $3.7 billion short of revenues this year.

Whether the trigger that was built into the budget in case the $4-billion did not appear gets pulled, depends on a number of factors. The first is what the governor’s Department of Finance reports the deficit is in about a month.

Even if the Department of Finance figures match the LAO’s numbers there is no certainty that the trigger will be pulled to the full extent of the law — $2-billion.

The largest portion of that $2-billlion would come out of education, with K-12 being reduced $1.1 billion.

Legislators and the governor might peer into the same crystal ball that forecast the $4-billion windfall and see brighter days ahead, concluding that the deepest cuts don’t have to be made.

Then there is the question of taxes. The governor and school interests are already working on plans to put tax increases on the November ballot. But, will the governor go back to the legislature with a proposal for tax increases now, promising to abandon the ballot measure if the legislature passes a tax increase?

The governor was not able to get Republicans to go along with tax increases in the spring. He might be convinced that a drastic hit to schools will generate public outrage and help change the minds of some legislators.

The appetite for tax increases is still not there if you consider the new Public Policy Institute poll released yesterday. While the poll tested only attitudes about higher education in the state, despite more than six in ten saying that higher education is going in the wrong direction, tax increase proposals to better fund higher ed received less than majority support.

Then again, the governor might try to couple concern over school cuts with a sweetener for Republican legislators to reach a deal. Recently, the governor turned down a proposal from Republican legislative leaders to call a special session for pension reform. Would he call a special session that would consider both pension reform, which the Republicans want, and a tax increase, which the Democrats seek?

From the Grasping at Straws Department — if there is any good news in the LAO report, it is that despite the state looking at a $13 billion budget deficit for the next budget year as a consequence of the current year projected deficit and the operational budget shortfall, long term forecast by the LAO shows the deficit dropping to $5 billion by 2016. That is the result of recent budget cuts and the prospect of improved revenue.

(Joel Fox is President of the Small Business Action Committee and Editor of Fox & Hounds, where this article was first published.)


  1. Bottom line – How can you tell if California Legislators are lying? Their lips are moving. Why should US citizens, residents of California be surprised that the so-called $4 optimism budget adjustment not be smoke and mirrors mismanaged by the likes of Jerry Brown, Darrel Steinberg and their ilk.

    In the real world, where performance determines longevity, each and every member of the CA Assembly, Senate, their staff and every consultant would be out of work and none too soon. In California, the taxpaying public has been exposed to a long-term incompetence the likes of which has killed business, industry, economic growth and stability in what was once the ‘Golden State’.

    Ladies and Gentleman of the once great state of California, ‘Wake Up!’ and replace each and every member of the California State Government. No matter what it will take, the only way this state has any hope of recovery is the removal of the current management, the elimination of the payoffs, the institution of laws that make each member of California government legally liable for their growss mismanagement. Above, the replacement of government unions with a pay for performance program monitored by a state citizen’s committee made of of people who have never been in public office, have no affiliation with any agency of the government, not work for any contractor associated with the government. And before saying that is impossible, lets look at what we currently have and realize this must change – NOW

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