California’s fiscal analyst urges prioritizing budget cuts
Associated Press Writer
SACRAMENTO (AP) ” California’s fiscal watchdog on Monday said that unlike in previous years, Gov. Arnold Schwarzenegger’s state budget plan is based on reasonable economic data.
It’s his proposed long-term fix to balance spending and revenue with a constitutional amendment that is flawed, the report said.
Elizabeth Hill, the state’s nonpartisan legislative analyst, also cautioned that Schwarzenegger’s proposed across-the-board cuts to help close a $14.5 billion shortfall are overly simplistic. She said the plan fails to consider whether all state programs should be cut equally.
Last week, Schwarzenegger proposed a $141 billion spending plan that calls for 10 percent cuts to most state agencies. The cuts would reduce classroom funding by hundreds of dollars per student, force the early release of 22,000 prison inmates and close one in five state parks.
H.D. Palmer, spokesman for the governor’s Department of Finance, defended the plan for across-the-board cuts.
“It’s a policy choice,” he said. “The decision spreads cuts as evenly as possible to prevent any service or critical program from being singled out and eliminated.”
The governor last week also declared the state’s first fiscal emergency under a measure voters approved in 2004. The move is designed to force lawmakers to begin addressing the shortfall in the next 45 days, instead of waiting to make cuts in the budget year that begins July 1.
For that, Hill’s report offered a sketch of the 45-day period and the uncharted waters lawmakers must navigate.
She said the Legislature should rank its highest priorities, maintain funding for critical programs and make deeper cuts to or eliminate programs that are not as important.
Hill also said the Legislature should consider increasing revenue by closing tax loopholes. That suggestion drew immediate warnings from Republicans, who said new taxes will not solve the state’s budget woes.
Hill also warned that the 45-day period includes the release of several economic reports that could show the state is in even worse shape than Schwarzenegger’s administration estimates.
Her advice came the same day Fitch Ratings placed the A+ rating on California’s approximately $43 billion in outstanding general obligation debt on negative watch.
The ratings house said the move reflected California’s widening structural budget gap and cash-flow imbalance. It said a downgrade would hinge on whether lawmakers take timely action to close the deficit during the emergency session.
The deficit for the current year is estimated at $3.3 billion, while next year’s is projected to be $11.2 billion.
In a statement, Assembly Speaker Fabian Nunez said the report shows that lawmakers must work to balance spending cuts with the state’s priorities.
“The legislative analyst underscores some of the key concerns Assembly Democrats have as we work to address the state’s budget imbalance,” said Nunez, D-Los Angeles. “Across-the-board cuts don’t adequately reflect the state’s needs and demands, and the budget reform proposals put forward so far have serious flaws.”
Schwarzenegger last week resurrected a previously failed plan for a constitutional amendment that he said would force automatic budget cuts to avoid large deficits like the one he is now facing.
The governor wants to trigger the cuts when state finances start falling into the red and create a surplus when revenue comes in higher than expected. The surplus fund would be capped at 15 percent of the budget and could be used only to help with the next downturn.
Hill warned that adding a new formula for state spending and automatic cuts would only “take the state’s already complicated budget system and make it even more complex.”
She also warned the proposed constitutional amendment would change the balance of power in the Capitol when it comes to state spending. It represents “a serious diminution of the Legislature’s authority,” Hill wrote.
“Under the state Constitution, only the Legislature can appropriate funds and make midyear reductions to those appropriations,” she said. “Under the administration’s proposal, the governor would have the authority to determine when across-the-board reductions and suspensions of state law would occur.”
Palmer stressed that Schwarzenegger’s plan would continue to give the Legislature power to determine where midyear cuts are made. The Legislature would approve in advance where the governor would be permitted to cut.
“If we got into a situation where we were heading into a deficit, the Legislature would have already preapproved those spending cuts,” Palmer said. “We think the Legislature would be in the driver’s seat.”
On the Net:
Read the legislative analyst’s report at http://www.lao.ca.gov
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