Money (Not) In The Bank

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As we wait for yet another state budget impasse to be resolved, there's one sure bet: the final deal will include assumptions about money that never materialize.

Why is it a sure bet? Because they've been used in just about every recent budget... and because a couple of prime candidates are already on the table this time around, options that are a lot easier to accept than the painful alternatives.

That's the focus of my story this morning on The California Report, part of our ongoing series Governing California: Making Sense of Our State of Disarray.

It should be made clear at the outset that we're focusing (for now) on questionable assumptions about either revenue or spending cuts -- not the ever growing category of accounting gimmicks that recent budget deals have included. Those gimmicks, as bad as they may be, might actually result in some kind of action that resolves a given year's deficit.

Unrealistic money assumptions, on the other hand, mean that the deficit is merely kicked to another year and another round of negotiations. We've compiled a list of failed (or possibly soon-to-fail) assumptions for the website of our Governing California project. The list includes everything from assumptions about the sale of the state's workers comp insurance fund to cash from punitive damage awards and beyond.

In almost every case, the state appears to have gotten precisely zippo... bupkus... thus leaving the budget agreements from those years unbalanced. Which isn't illegal, by the way. Lawmakers are only required to enact a balanced plan.

"Proposition 58, for the first time, actually required the Legislature to pass a balanced budget," says Michael Cohen, deputy analyst at the Legislative Analyst's Office. "But it did nothing in terms of ending the year with a balanced budget."

Cohen makes another interesting point, which others in the Capitol agreed with as I was working on this story: the law may not limit the number of unrealistic budget assumptions, but Wall Street does. Remember that even in generally good years (remember those?), the state still looks eastward for short-term loans to compensate for the uneven yearly flow of tax revenues when it comes to paying the bills every month. A budget that has too many optimistic plans for spending cuts or extra revenues is likely to be looked down on by Wall Street muckety mucks.

"That's a real factor," said Senate President pro Tem Darrell Steinberg. And yet the legislative leader seems to see no way around some of these kinds of assumptions always being built in the final deal.

This year's slow negotiations include two possible entrants into the Dubious Money Hall of Fame.

One is a proposed $811 million cut to the operations of the federal court-appointed receiver for prison health care. That number, first penciled in by Governor Schwarzenegger's budget plan, appears in every single budget document floating around out there... even though lawmakers have little control over the receiver's spending (and to be fair, the current receiver says he's working to lower costs).

Another -- and this one is a biggie -- is revenue from the feds. Schwarzenegger's first 2010 budget plan pegged the amount at about $7 billion; by May, he had reduced it to $3.4 billion. Budget staffers say the number that's now floating around is $3.6 billion... and perhaps even more if you count money for programs the Guv had proposed eliminating. This isn't to say that the state will receive zero from the feds to help balance the books. But no one can say for sure that the current number is reliable; in fact, the governor's May budget plan describes almost half of his estimate as "additional federal funds for health and human services and for the Department of Corrections and Rehabilitation." And then there are other more specific hopes -- like more help in the federal Medicaid program -- that remain in political limbo back east.

As one legislative staffer said to me recently: "Sure, that amount may not pan out. But hey, it's the governor's number."

Senate pro Tem Steinberg said in an interview last week that sometimes, these kinds of assumptions are necessary, and better than the alternative.

"If we aren't to assume, for example, the federal funds," he said, "that means one of two things: either deeper spending cuts, which we can ill afford, or it means raising more taxes."

Steinberg said that perhaps if some of the ugliest options can be put off, maybe it will give the economy time to recover... thus shielding some of the pain that would otherwise be inflicted.

Perhaps so; but the reality is that these kinds of budget balancing tricks were en vogue well before the current economic crisis, and may still be easier to rely on long after this one's over.

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About John Myers

John Myers is Sacramento Bureau Chief for KQED Public Radio and "The California Report," heard daily on 23 public radio stations across the Golden State.

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