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California's budget is riddled with gimmicks
California Governor Jerry Brown capped a fiscal year filled with disappointing revenues, a deficit that ballooned from $9.2 to $16 billion, and desperate pleas for tax hikes by signing a $92 billion state budget late Wednesday. Like most states, California is constitutionally required to pass a balanced budget. To the casual observer, this would mean spending no more than the amount the state is certain it will take in. The new budget, however, relies on crafty gimmicks that allow legislators to proudly announce a "balanced" budget without the difficult decision-making typically associated with governing.
Still non-existent taxes
Governor Brown spent tremendous political capital over the past year pushing a ballot initiative that would increase income and sales taxes. Even though voters will not decide their fate until November, the budget simply assumes that the state will receive an extra $8.5 billion. Legislators pulled out all the stops to ensure the ballot measure's success, even passing a bill that conveniently moves the question to the top of the ballot.
Even worse, the tax deal holds a proverbial gun to the head of taxpayers by threatening to chop $6 billion from K-12 and university education spending if the tax hikes are rejected. This makes an absolute mockery of the state's priorities. If one were to make a list of those priorities, as Reality Based Budgeting calls for, education tops that list. Yet the budget refuses to treat education as a service worthy of careful consideration and reform to ensure successful students. Instead, education is becoming a hostage of the political system, forcing parents to choose between higher taxes or cutting three crucial weeks of learning from their children's' school year.
"Across the board pay cut"
The original budget proposal granted the Governor the power to authorize state employee furlough days without legislative or union approval. Unions were successful in removing that provision from the final deal. Instead, the budget contains what is being hailed an "across the board pay cut" for state employees that is anything but. Citizens will see services limited, while labor unions give up next to nothing. Employees will take 12 days of unpaid leave over the next 12 months, but see no actual cuts to annual salaries and benefits. The deal is a one-time fix that makes no changes to employee contracts. Many will still receive next year's scheduled 3% pay raise. This bold, across the board cut saves a measly $840 million in a $92 billion budget.
With all of the trouble that California has run into as a result of inflated revenue assumptions, one would think that leaders would go out of their way to rely on modest projections. The reality is that the state might be setting itself up for more disappointment.
In May, according to the Sacramento Bee, the Legislative Analyst's Office reported that Brown's revenue projection was $550 million too high. Redevelopment agency assets were $900 million too generous. The analyst's own projection included $2.1 billion from Facebook stock transactions by assuming that they would trade at $10 higher than the current share price. The budget also relies on $500 million from a newly implemented cap-and-trade style emissions program. While $500 million might actually be a modest prediction, the state could run into legal trouble if it tries to use the money for anything other than emissions reductions. Combined with the expectation that voters will approve Brown's massive tax hike, it is clear California's leaders continue to inflate revenue assumptions without pause.
Why rely on gimmicks?
Governor Brown may believe that the budget "reflects tough choices," but the truth is that tough choices are exactly what budget gimmicks are designed to avoid. By placing massive cuts to education at the mercy of the voters' willingness to approve higher taxes, officials are in a perfect situation to avoid taking responsibility for politically troublesome cuts. By relying on revenues that might not materialize, leaders may blame the slow economy when reality does not meet their expectations. Until California radically reforms its entire budget process, nothing will stop future legislators or governors from repeating these same mistakes.