Taxes and fees are projected to put about $82 billion into California's general fund for the fiscal year starting July 1. But at current rates, the state would spend about $22 billion more than that. The gap between revenue and spending plus the gap in the current fiscal year's budget and reserve funds adds up to the total deficit, now estimated at about $28 billion.
Closing the gap is made harder by several mandates. For example, voter-passed Proposition 98 requires that roughly 40% of all revenue go to elementary and secondary schools and community colleges. The requirement can be suspended by a two-thirds vote of the Legislature; otherwise that money is off limits to cutting. The state Constitution requires that interest on state debts, about $4 billion each year, be paid before anything else.
The federal government pays up to 80% of the cost of some health and welfare programs, but in return sets minimum levels of state payments. If the state cuts below those minimums, it loses federal money. Other federal laws require the state to spend money on everything from prisons to universities. All told, well over half of state spending is restricted in some fashion. Other big-ticket items don't have an immediate impact on the deficit. Most money for pensions for state retirees, for example, does not come out of the general fund.
The Times' choices for cutting spending, raising taxes or borrowing more money are based on proposals presented by Republicans and Democrats, the governor, members of the Legislature and outside groups. The amounts by which each would reduce the deficit come from the state Department of Finance and the state's nonpartisan legislative analyst. Some have considerable political support, others almost none.
-- David Lauter and Evan Halper
Questions and answers:
Why have the options for cutting K-12 funding changed?
The original version of the Budget Balancer offered readers the option of cutting spending by $1,000 per pupil from the current level and incorrectly said that would reduce the deficit by $3.7 billion. The correct figure is $5.9 billion. On Jan. 20, the Budget Balancer was updated with options for deeper cuts in school spending which allow the budget to be balanced entirely with spending cuts. Many other large areas of state spending, including some health and welfare programs, cannot be cut more deeply because of conflicts with federal laws.
Q: What about pensions? Why are pension reductions not included among the choices for reducing the deficit?
California has a serious long-term problem with its pension system, but in the short-run -- balancing the budget this year and next -- pensions have only a small impact. Moreover, most of the changes that the Legislature can make to the pension system would have virtually no short-term effect. The state can change rules for future retirees, but has little legal ability to reduce pension benefits that already have been granted to current retirees.
Q: What about illegal immigrants? Could the state fix its deficit problem by cutting benefits to illegal residents?
No. State officials have estimated that services which go to California's illegal population add between $4 billion and $6 billion to state spending. The lion's share of that money goes to provide public education to children who are here illegally. The U.S. Supreme Court ruled in 1982 that states must provide public school education to all children, regardless of citizenship, and the state has no option but to abide by that decision. The second-largest cost is for imprisoning convicts who are illegal immigrants. The budget-balancer includes an option for trying to save money by shifting those prisoners to federal custody, although past attempts to do that have failed. The third-largest cost is for medical care in emergency rooms, a portion of which is paid by the state. Federal law requires emergency rooms to treat all patients, regardless of citizenship. The state also provides welfare benefits to some U.S.-born children of illegal immigrants. In 2009, state officials estimated that denying those benefits would save about $640 million, but state lawyers said the move would probably be illegal because the U.S.-born children are U.S. citizens.
Q: How has state spending changed in recent years?
State spending grew steadily until 2007 but has been cut significantly since then. For the 2007-08 fiscal year, general fund spending was $103 billion. In the current fiscal year, spending is budgeted at $86.5 billion although it probably will be closer to $90 billion, based on current projections.
Q: Are California's taxes the highest in the nation?
No. California's top income-tax rate, which applies to income over $1 million, is among the nation's highest, but few people pay that rate. Other levies, particularly property taxes, are significantly lower in California than in some other states. Overall, the state ranks 15th in the total level of taxes per $100 of personal income.
Q: How do welfare benefits in California compare with those in other states?
The answer varies widely depending on the specific benefit. For some benefits, California's payouts are among the lowest in the nation. For others, the state is more generous.
Q: What about all those boards and commissions that people cite as examples of government waste?
California government has hundreds of boards, commissions and agencies. Over the years, eliminating some or all of them has figured in a host of plans for making state government more efficient. Whether all these groups are a waste of money or not is debated - each has its defenders. What isn't debated is that even if they are taken altogether, the boards, panels and agencies don't amount to much in budget terms. In 2004, Gov. Arnold Schwarzenegger's California Performance Review called for eliminating 117 government bodies. The state's bipartisan Legislative Analyst's office, in its review of the plan, said that eliminating those agencies would have only a small impact on state spending.
Q: Could California balance its budget with something more radical?
All kinds of ideas have been floated from the political left and the right - legalizing marijuana and taxing it, contracting with private companies to run the prisons, turning all highways into toll roads, eliminating all medical care for the poor. Most of those proposals share certain common problems - some conflict with federal laws, some would take years to implement. A radical overhaul of California government might accomplish many things, but balancing this year's state budget is probably not one of them.
Q: Is the size of the projected deficit likely to change?
Yes. Deficit projections can be affected by several factors: The governor and Legislature can make changes in state programs that could increase or cut next years deficit. The budget has some built in assumptions about the amount of money the state government will receive from Washington. If federal aid comes in above or below that assumed amount, that will alter the deficit projection. And most importantly, the deficit fluctuates with changes in the economy. California government depends heavily on income tax receipts from upper-income residents, and those tend to be volatile. State officials will release an official update on the deficit in May, but even before then, any of those factors could shift the projections by several billion dollars although not by enough to avoid either deep spending cuts or revenue increases.
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