Getting California Beyond the Slapdash Patch Jobs : Isn’t it obvious by now that California requires a true financial plan?

Sacramento’s year-to-year crisis management of state fiscal problems received a big thumbs-down from Wall Street the other day. The message was clear: The new “make do” budget is inadequate and could possibly exacerbate the unprecedented problems faced by the state. What is needed is a detailed, comprehensive, long-range plan to get California public finance under control.

Without such a five- or even 10-year strategy, the Golden State could find itself on a slippery slope toward the near-disastrous experience of New York City in the mid-1970s, when it was on the verge of bankruptcy. Designing a preemptive strike to prevent such a fiasco in California should be a big issue in the governor’s race and top priority for whomever takes office next January.

The wake-up call from Wall Street rang loud and clear last week when all three bond-rating agencies downgraded California credit worthiness because of concerns about the budget for fiscal 1994-95 and the following year. Their assessment: It was a politically expedient but problematic budget because of the reliance on $3.6-billion in unappropriated federal funds, record short-term borrowings of $7 billion and the inclusion of sledgehammer automatic spending cuts in the event of state revenue shortfalls. Another troubling development was last week’s federal court ruling that invalidated California’s 1992 welfare cuts.

The uncertainty surrounding each component of this budget undercuts any credibility of sound fiscal management. Tough decisions have been merely put off. The process of addressing the incredibly complex task of tackling the structural problems of the budget and addressing the accumulated $3.8-billion deficit must begin in earnest very soon. Neither problem will be resolved if addressed in a piecemeal fashion, nor will the solutions be easy and quick. It will take a very specific financial package--a precise formula of further painful cuts, serious restructuring and perhaps even some new revenues over a period of five to 10 years or longer.

The recession certainly worsened California’s fiscal problems, but it was not the lone cause. Even before the economic slowdown, structural impediments such as Propositions 13 and 98 were reducing budget flexibility. Even with the economy recovering and revenues rising, there are continuing pressures on the spending side, such as a projected increase in expenditures for growth in social-service caseloads and prison operations. So even as the state has managed to match revenue and spending over the last two years, the balancing process will continue to be tough. The budget process needs a higher level of accountability of operating and capital spending plans.

Then there is the accumulated deficit, now financed out of the general fund. Can the deficit be financed some other way? No state is directly comparable with California, but Massachusetts, Connecticut, New York and Louisiana have each issued such deficit-funding bonds. But, in each state, the bonds have been part of a specific multiyear fiscal plan--not some slapdash patch job.

Implementation of a multiyear financial plan will not come without pain. Precisely what that might be will not be known until a strategy is devised. But without such a comprehensive plan, California will continue on its haphazard fiscal management and further jeopardize its credit worthiness. As soon as Nov. 15, the state controller will assess whether California is on track within 1% of earlier projections of revenues and spending. If the state fails this test, automatic across-the-board spending cuts, except for education, would take effect in mid-February. That prospect is not pretty.

As a political matter, Sacramento is unlikely to handle this problem before the November elections. So what we are proposing will take the leadership of the next governor. But even now, Gov. Pete Wilson and his challenger, State Treasurer Kathleen Brown, need to be discussing and debating just this: California’s need for a plausible long-range financial plan. To put this off any longer is fiscally irresponsible and extremely risky.