LAO: Chances of Getting Arnold's DC Wish List "Almost Non-Existent"
The Legislature's non-partisan cadre of analysts has weighed in on some of the big assumptions and proposals in Governor Arnold Schwarzenegger's new budget plan. And while many of the ideas are looked upon favorably, one glaring exception is the Guv's plan for a $7 billion fix to the state's budget problem.
"The chance that anywhere near all of the federal funds and flexibility sought by the Governor in his budget package is almost nonexistent," concludes the new report from Legislative Analyst Mac Taylor.
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$21 Billion Deficit Now, Worse Later
The headline, rushed online yesterday by news outlets looking for a scoop, makes it clear the state's budget woes aren't getting better. Maybe even worse.
But deeper inside the new in-depth analysis of the Legislative Analyst's Office are examples of a government budget system that's evaporating faster than the polar icecaps.
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$21 Billion Deficit Could Grow to $24 Billion
[UPDATE: It appears that Schwarzenegger is now abandoning his call for about $5.5 billion in borrowing for the year starting July 1, a borrowing plan that the LAO (see below) has criticized. That means, according to his advisers, more spending cuts. --JM]
A new analysis of Governor Schwarzenegger's revised budget suggests that the deficit could end up being as large as $24 billion by July 2010, forcing even more severe choices by lawmakers over the next few months.
Legislative Analyst Mac Taylor released his new report this morning, and estimates that even if all of the governor's budget ideas are adopted, California faces a shortfall in excess of $15 billion the year after next. As a result, he says long-term planning is a must.
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Prop 1A: Not Quite A Cap, Not Just For Rainy Days
The rhetoric in support and opposition of the marquee measure on next month's special election ballot is fairly simple. The measure itself is anything but.
On this morning's edition of The California Report, we presented the first of two stories examining the details and ramifications of Proposition 1A.
A close examination of Prop 1A finds it's neither the tight spending cap nor ultra-prudent rainy day fund it's often made out to be. As often is the case in politics, the truth is a little more complicated.
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Itchy Trigger Day 2: "Mass Confusion"
"There's mass confusion still at this stage."
That's what Governor Schwarzenegger said today about efforts to find precise estimates in both how much money California is getting from the federal stimulus package… and… how much of that money counts toward whether officials can pull the so-called budget "trigger."
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Leg Analyst: Guv's Math Ok, Solutions… So-So
Legislative Analyst Mac Taylor's new quick look at Governor Schwarzenegger's budget says the calculations seem reasonable, but that there are some better ideas out there for solving the $40 billion shortfall.
The nonpartisan budget guru (relied on by those of us in the press corps as the annual budget battle equivalent of Switzerland) says that Schwarzenegger's plan is a little too reliant on borrowing and a little too vague on how to achieve some of the projected savings.
First, the borrowing. The LAO says about $1 of every $5 of the governor's deficit solutions is achieved through borrowing. That includes about $5 billion in costly revenue anticipation warrants (RAWs) that would be sold to Wall Street investors, and about an equal amount (in the short term) of borrowing against future revenues from the California Lottery. Those two big requests from the financial markets are on top of what the LAO says is another $13.3 billion needed from lenders/investors to make the books balance.
Taylor's analysis (read it here) also points out that the governor hasn't defined some of the ways he proposes to save money, like a $334 million savings in money spent on services for the developmentally disabled. "The budget provides no specifics as to how these savings would be achieved," the report states.
So what does the Leg Analyst suggest? First and foremost, the report calls for swift action to set the date of the anticipated special election; you'll remember that last September's budget deal included two items to be approved by voters, but no date was formally set. The conventional wisdom is that the election would be held on June 3 of this year… but the Legislature has yet to set the date. The LAO recommends more items be placed on that ballot to save money, including one Schwarzenegger vetoed in September's budget deal — a call to voters to amend the guv's 2002 initiative on after-school programs, Proposition 49. The LAO says voters should also be asked for approval to borrow against gas tax revenues to speed up needed transporation projects.
Today's overview probably isn't big news, but it does seem to point out just how much work remains to be done. As such, the report is probably a good starting place for the Big Five meeting scheduled for this afternoon between the governor and legislative leaders.
Not that they've asked for my advice.
[update 12:50 p.m. -- Taylor highlighted two other things worth noting in his Q&A with Capitol reporters this morning. First, his office believes there could be serious legal issues with the Schwarzenegger plan to use those RAWs to help solve the budget deficit. Taylor says that appears to be taking what's traditionally been a cash flow device (RAWs are almost like a bridge loan), and making it a budgetary device... which might run afoul of 2004's Proposition 58, the balanced budget amendment championed by the guv.
And second, the LAO is recommending legislators call the all-budget-all-the-time special election for late April, rather than wait for June. That's certainly going to get tongues wagging among county registars, the people who actually conduct elections. State law traditionally sets the deadline for calling an election at 131 days in advance. The LAO suggestion would shrink that to probably less than 100 days. It should be noted that legislative staffers believe they could make the decision as late as 80 days before election day.]
Bad? You Ain't Seen Nothing Yet
It's kind of hard to be surprised by bad economic and budget news in California these days. After all, there's virtual unanimty that we're in deep you-know-what.
And yet, today's full analysis by the Legislature's nonpartisan budget watchers is still shocking… probably for its opinion that the problems stretch across almost every single aspect of state revenues and expenditures.
The annual fiscal outlook, the first under newly minted Legislative Analyst Mac Taylor, adds some details to the gloomy projections the LAO released just nine days ago. That projection focused on a $28 billion gap by July 2010.
Ready for some more bad news?
The Five Year Flu: The LAO report concludes the current economic storm, which could easily keep blowing into the next fiscal year, will result in a prolonged period of revenue problems. Analysts now predict it will take until the 2013-2014 budget year for state government revenues to surpass those received just last year — in total, a five year recovery.
And It Could Be Worse: The report, with a nod toward the fact that no one really knows how much worse things will get, includes a scenario where personal income grows only half as much as the LAO now predicts for 2009 and 2010. The result: another $4.5 billion less in state government revenues in the short term.
Capital Gains Collapse: The outlook for capital gains revenues really helps tell the overall story. Profits on stocks and real estate are a major component of personal income tax revenues for the state, and thus a major component of government revenues. The LAO outlook now projects capital gains will decrease from $125 billion in the 2007 tax year to just $65 billion in 2008… almost a 50% drop in one year. In 2009, the LAO believes capital gains will fall to just $41 billion — that's a 66% evaporation of capital gains revenues in just two years.
Housing, Unemployment: Two more signs of the meltdown… while more than 200,000 new residential building permits were issued in both 2004 and 2005, the annual totals this year and next are expected to only be about 70,000. Meantime, California's unemployment level was about 4.9% in 2006; by next year, the LAO believes it will be 9%… or higher.
Expenses: Lest anyone think the problem is strictly too little cash, the LAO projects an ongoing rise in state government expenses (but to be fair, the projected problems seem to be much more severe on the other side of the ledger). Some biggies — public schools (K-12) spending to rise by 2.2% a year; Medi-Cal spending to rise by an average of 6.1% a year; in-home supportive services (IHSS) to average 7.9% more a year; and prison spending to increase an average of 2.6% a year.
But the winner… debt service. The LAO predicts payments for all of the state's borrowing through bonds will rise an average of 9.9% a year. That increase includes the bonds approved by voters just two weeks ago.
This kind of sober assessment would presumably shake up the cuts/taxes soap opera that's been playing out in the Legislature these past few years. For now, it hasn't; another leadership meeting today apparently didn't move the ball over the goal line.
Plans for a weekend budget vote in one or both houses have been scrapped… with the best case scenario now being some sort of budget action taken just before that Thanksgiving turkey gets popped into the oven.
LAO: $28 Billion Gap, $22 Billion A Year After That
No, you didn't read that headline incorrectly.
This morning's report by Legislative Analyst Mac Taylor finds a state budget meltdown that certainly would rank among the very worst ever seen, if the numbers hold up: an almost $28 billion shortfall in revenues over the next 18 months, and… perhaps even more stunning… annual shortfalls in the range of $22 billion after that.
Granted, these are only projections and they do not account for the implementation of solutions. Still, the estimates are almost certainly going to cause a dramatic increase in tensions inside the Capitol, both during the lame duck special session and once the new Legislature convenes next month.
This is the first official report produced under new analyst Taylor, and it's a doozy.
"The state's revenue collapse is so dramatic and the underlying economic factors are so weak that we forecast huge budget shortfalls," says the opening summary of the report.
The LAO agrees for the most part with the recent analysis of Governor Schwarzenegger's finance team (though they feel the immediate gap is slightly larger), and finds his proposals for both tax increases and spending cuts "balanced."
The report also finds a worsening situation on the spending side of the state budget ledger. Chief among these is a loss of approximtely $1.5 billion in property tax revenues over the course of three fiscal years — thus increasing state government's responsibility to funding public education. Tacked on to that are unexpectedly high caseloads in social services programs; the still lingering cost of fighting recent wildfires across California; and… not surprising to nonpartisan budget watchers… a lack of actual savings from so-called "unallocated" spending reductions penciled in to make previous budgets balance.
There's much more in the report, which will be discussed by Taylor at an afternoon news conference. And it will no doubt be the shot heard 'round the Capitol this morning… an affirmation that the challenge that lies ahead is unlike any other legislators or the governor have faced.
In the immortal words of Bette Davis: "Fasten your seatbelts. It's going to be a bumpy night."
New Analyst, Same Kind of Analysis
For the very few of us left covering state government these days, the one place where motion sickness pills are not required (to combat the ever present spin) is the Legislative Analyst's Office.
The LAO has been a paragon of non-partisan research and assessment, thanks in no small part to the person running the show these last 22 years, Legislative Analyst Elizabeth Hill.
But Hill has decided to retire, which means someone else has to carry the torch. And this morning, legislators from both parties introduced the new boss… which, from his brief chat with reporters, may be much like the old boss (with apologies to The Who).
He's Mac Taylor, Hill's top deputy for the past 18 years. Taylor becomes only the fifth legislative analyst since the office was established in 1941. And he seems to see the job very much like his departing boss did.
One item Hill has been critical of in the past has been the various voter-approved formulas that lock down state spending in ways that make the Legislature's job that much harder.
Taylor says he agrees with his predecessor. "Anything that makes it more difficult for the Legislature to get a budget and make decisions on an annual basis are things that should be looked at," he said.
But that being said, the new top analyst said he'll be looking for ways to improve the research bureau. "Every analyst puts their own imprint on the office," he said, "and I'll have some ideas of my own."
Elizabeth Hill was dubbed by some Capitol watchers as the 'Budget Nun' for her straight talk when it came to state finances. So what will we call Taylor?
Given the tough budget times California is facing, one legislator who helped select the new legislative analyst — Sen. Dennis Hollingsworth (R-Murrieta) — offered this suggestion: 'Mac the Knife.'
The LAO is scheduled to release a full economic forecast next month, about which Taylor would only say the following today: "Cleary the news is not good."
About the Blogger
John Myers is Sacramento Bureau Chief for KQED's The California Report, heard on public radio stations around the state. More about John...
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