California budget: deficit deal likely just a temporary fix
The Associated Press
SACRAMENTO, Calif. and#8212; California’s deal to close its $26 billion budget gap may end up doing what Gov. Arnold Schwarzenegger had hoped to avoid: kicking the state’s problems down the road.
Despite deep cuts to education and social programs, the deal struck late Monday is filled with assumptions and accounting gimmicks. Combined with a persistent recession, it is likely to lead to yet another multibillion-dollar deficit in the next fiscal year.
“Frankly, we may not be done yet,” said Senate leader Darrell Steinberg, D-Sacramento. “We pray for better economic news sooner rather than later.”
The plan cuts $15 billion from government programs by slashing spending on schools, universities, health care, welfare and in-home support for the disabled and frail.
But it does not entirely rewrite the social contract between California and its citizens, as some had feared. Schwarzenegger’s original proposal called for eliminating welfare and health care for 930,000 low-income children.
Schwarzenegger and lawmakers said it was the best they could do under the circumstances, with tax revenue evaporating and Republicans refusing to raise taxes.
Yet the agreement seems to run counter to Schwarzenegger’s mantra in recent months to avoid “kicking the can down the alley.” During a speech in San Diego County last month, he said it was time to stop dodging tough budget decisions.
“I think that time is over,” he said. “There is absolutely no place left to hide. The days of gimmicks and the days of denial are literally over. California’s day of reckoning is finally here.”
But $11 billion of the deficit will be closed by taking some $4 billion from local governments, shifting funds from other government accounts, and playing a variety of accounting tricks.
The deal speeds up the state’s collection of 2010 personal income and corporate taxes to bring in revenue earlier than anticipated. Taxpayers essentially would be giving the state an interest-free loan until they claim the money on tax returns.
One gimmick defers state employees’ paychecks by one day for a savings and#8212; on paper and#8212; of $1.2 billion. Instead of being issued on June 30, 2010, the paychecks would be issued July 1, the start of the 2010-11 fiscal year.
About $2 billion in property tax revenue that will be borrowed from local governments will have to be repaid with interest in three years.
The plan also assumes the state can sell off part of the State Compensation Insurance Fund, which the administration values at $1 billion.
Some experts said the severity of the recession and GOP opposition to any tax hikes, including increases on tobacco sales and oil drilling, tied the hands of the governor and lawmakers.
In the end, they were left with few choices, said Bruce Cain, director of the University of California Washington Center in Washington, D.C.
“Given the political circumstances that you weren’t going to get any concessions out of the Republicans, this was the best you could do,” he said. “I don’t fault the Legislature for what they did.”
While lawmakers preserved the state’s core social service programs and#8212; public education, and health care for children and the poor and#8212; those services will experience deep cuts that are expected be in place for several years as the recession erodes tax receipts.
Medi-Cal, the state’s health program for the poor, will be cut by $1.3 billion. Welfare, in-home support services and a health care program for low-income children also would suffer.
“People are scared that their coverage isn’t going to be there when they need it,” said Anthony Wright, executive director of Health Access California. “This certainly suggests that even the safety net is not going to provide coverage, even if we fall into poverty, even in the worst of circumstances. … That guarantee, as incomplete as it was, is being unraveled further.”
The budget cuts $6 billion to K-12 schools and community colleges, along with nearly $3 billion from the California State University and University of California systems.
The education cuts have forced one of the country’s largest university systems to impose employee furloughs, raise student fees and limit the number of freshmen. Cuts to public school funding have led to increased class sizes, teacher layoffs and elimination of sport, music and art programs.
Schools haven’t yet felt the full effect of the state’s cuts because of federal stimulus money, said Renee Hendrick, executive director for business services at the Orange County Department of Education. But she said the cuts will be devastating once the federal money runs out.
“I think you’re going to see larger class size, reduction in arts and music programs,” said Hendrick, president-elect of the California Association of School Business Officials. “I don’t think we’ve seen the full magnitude of the cuts yet.”
The prospects for a quick economic recovery seem dim for California and many other states, leading some experts to say the spending cuts being made now will remain for years.
Already, 29 states anticipate larger deficits for the 2010-11 fiscal year, as short-term budget fixes expire and federal stimulus money disappears, according to the Center on Budget and Policy Priorities.
At least 39 states have imposed cuts to key services. Minnesota and Rhode Island cut health coverage for low-income adults, Utah reduced Medicaid funding for physical, occupational and other therapy, and South Carolina reduced school aid, according to the Center on Budget and Policy Priorities.
“State revenues lag the national recovery, which means and#8212; a national recovery not withstanding and#8212; states are still looking at a grim number of years,” said Sujit CanagaRetna, senior fiscal analyst in the Atlanta branch of the Council of State Governments.
California lawmakers are expected to vote Thursday on the new budget.
But it requires a two-thirds majority to pass, and that’s not certain, given the severity of the cuts, which could draw opposition from some Democrats.
A proposal to expand oil drilling off the coast of Santa Barbara, overturning a state commission’s decision earlier this year, is another provision that could be a deal-killer for some Democratic lawmakers.
If Schwarzenegger signs it into law, the budget-balancing deal is almost certain to draw legal challenges. Public employee unions upset over furlough days have already threatened to sue, as have local governments that do not want to relinquish their tax money.
At least one state vendor said the state’s budget impasse has done so much damage that it will take California months to recover.
“It’s like the reverse economic stimulus package for California,” said Gloria Freeman, who owns Saff USA Inc., based 25 miles northeast of the state capital.
Associated Press Writers Don Thompson and Judy Lin contributed to this report.
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