(November 22, 2010) Without action, California will face a $25.4 billion “budget problem” by the time the Legislature enacts a 2011–12 state budget plan, according to nonpartisan state Legislative Analyst Mac Taylor.
Moreover, annual budget problems of $20 billion will continue through 2015–16, Taylor predicts in his assessment of California’s fiscal outlook, released on November 10.
Deficit and ‘Gap’
The $25.4 billion problem consists of a $6 billion projected deficit for 2010–11, and a $19 billion gap between projected revenues and spending in 2011–12, according to the legislative analyst.
The projection assumes the state will be unable to secure about $3.5 billion in budgeted federal funding in 2010–11, and that prisons and several other programs will exceed budgeted costs. Moreover, the legislative analyst assumes the state will fall short of 2010–11 budget solutions due to the passage of Proposition 22, which revoked state borrowing of local government property tax funds, and prohibits the state from borrowing voter approved funding for transportation and mass transit.
Although the 2011–12 projected budget gap has dropped $2 billion from a year ago due to reduced education spending, the slow economic recovery still leaves a large operating deficit.
Multi-Year Budget Approach
As he has done in previous budget analyses, the legislative analyst continues to recommend that the Legislature begin a multi-year approach to resolving the state’s structural budget gap.
For 2011–12, he suggests $10 billion of permanent revenue and expenditure actions and $15 billion of temporary solutions.
In each succeeding fiscal year, another few billion dollars of permanent actions could be combined with temporary budget solutions until the structural deficit is eliminated, the legislative analyst said.
“Barring another sharp economic decline, such an approach could fix California’s near-term budget problems by the end of our forecast period in 2015–16 and give the state flexibility to begin (1) building reserves needed to address the next economic downturn and (2) addressing long-term fiscal liabilities,” the legislative analyst wrote.
Special Budget Session
The day after the legislative analyst released the budget review, Governor Arnold Schwarzenegger announced he will call a special budget session beginning December 6, the day legislators are scheduled to convene for the start of the new session.
In his weekly address on November 13, the Governor commented that the emergency special session of the Legislature “will allow us to make immediate midyear cuts.”
He continued, “Sacramento has no choice but to face the reality and to make the cuts and finally bring spending in line with revenues…I’m going to work very hard on that. And like I said to you, I’m going to charge through the finish line. There is no such thing as ‘the lame duck Governor.’ I’m going to work for you until the last end and then beyond.”
The budget analysis is available at www.lao.ca.gov.