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California: The past decade has been a textbook case of fiscal malpractice. And the story continues, with a new budget crisis that could have been prevented. The question now is will voters clean house?
As one former Golden State governor might have put it, there they go again. California's legislature and lame-duck governor, Arnold Schwarzenegger, are gearing up for a summer of stalemate, followed by fiscal trickery, over yet another of those yawning budget shortfalls that have become the state's trademark.
This time, Schwarzenegger in his latest budget revision says the general fund deficit through the end of next fiscal year (in June 2011) will come to $19.9 billion. By the way, that total includes a deficit in the current fiscal year, which has just over a month to go, of $7.7 billion.
How could this have happened in a state that, like most others, is required to adopt a balanced budget? We refer you to the fiscal trickery mentioned above. For some time now, California's political leadership has merely pretended to balance the books, when in fact it has been papering over problems through interfund borrowing (taking money from local government and roads, for instance) and rosy economic forecasting.
Schwarzenegger insists that the state is not overspending. Strangely enough, he's right. In the current fiscal year and his proposed 2010-11 budget, California's general fund expenditures would be well below where they were at the start of the 2000s, when corrected (as is reasonable) for population growth and inflation. The same is true when spending is corrected for the growth in personal income.
As the accompanying chart shows, the state would be spending quite a bit more than it does now if it had tied its budget growth to the growth of the state's population and economy.
So why is California in such a mess? The answer is also on the chart. Over the past decade, the state overspent plenty, creating a structural deficit that it's struggling to close by cutting services, squeezing local governments, releasing prisoners and juggling accounts to delay as many tough calls as possible. When times were good, around and at middecade, the state went on a binge. When the economy sank, it found itself broke. (For the record, Schwarzenegger took over in November 2003.)
The binges made the shortfalls worse in at least a couple of ways. First, they created new base lines for spending based on wages and benefits for state workers and everyone (such a teachers) getting state money. Second, they created an unofficial baseline of raised expectations.
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