Smoking Crack in Sac: 7.5 = 19.1

Topics: Taxes
08 Oct 2010

From: Ervan Darnell

California has a constitutional requirement [1] for a balanced
budget. The one it just passed, 100 days beyond the required deadline,
covered a $19.1B deficit [2] by:

1) Cutting spending $7.5B, you would think that balanced means expenses
fall to meet revenues, but apparently not.

2) Pretending the feds will give a $5.3B grant, even though that hasn't
happened before and isn't offered now.

3) Cherry picking the most optimistic income tax forecast. In what
sense is a budget balanced when it is allowed to borrow against future
expectation that can be fantasized to be anything? The only meaningful
sense of balanced is not only a projection that makes sense, but not
being allowed to borrow to spend money you don't have (for ongoing

4) Deferring tax credits for business operating losses, i.e. borrowing
in a hidden way and not actually balancing the budget. "Oh, yes, honey,
I balanced our budget this month, I opened a new credit card." Some
borrowing is appropriate in a recession perhaps, but Sacramento is
constitutionally obligated not to do that (for long term debt to cover
continuing expenses).

5) They are selling some government buildings and leasing them back, yet
another hidden way of borrowing.

As an aside, it's interesting to contrast Business Week coverage, which
actually lists most of the numbers (though still doesn't give a complete
breakdown) with AP coverage which lists only a few of them and ends with
"Public schools are facing deep cuts in the budget, receiving $3 billion
less than last year. More than half of that simply defers payments to
schools for a year. In the last few years, education has now been
slashed by more than $18 billion. " The liberal bias is blatant by
picking the most sympathetic government expenditure as a way to decry
any cut in spending, throwing in mostly irrelevant (and certainly
un-normalized) data from previous years. It's disingenuous too because
schools are > 50% of the budget, which was 20% in deficit, took a real
cut of 40% of that (i.e. 6% total cut). Thus, a school budget cut of
$3B is about 6% of the school budget, i.e. in line with everything else.

The real disappointment here is the despite a fiscal emergency the state
hasn't really changed any of its ways, like eliminating useless
programs, dropping union lock-in rules, eliminating future employee
pensions, dropping requirements that CALPERS (the retirement fund)
invest in politically correct instead of profitable investments,
returning school funding and control to cities and counties. It's just
papering over the crisis until it can return to its high spending ways.


[1] prop 58: