It’s a ‘Get By’ Budget

Budget season in the Capitol began in January with bold talk of ending “crazy deficit spending,” cutting deep into social programs or maybe even raising taxes. Today those ideas are gone.

After weeks of negotiations, a far different state spending plan has emerged with no deep cuts, no new taxes and a lot of borrowing. The Assembly takes up the budget package -- now estimated at $105.3 billion -- today, the Senate on Thursday. And Gov. Arnold Schwarzenegger hopes to sign it by the weekend.

“This was a very difficult budget because of the state’s fiscal problems,” said Senate President Pro Tem John Burton (D-San Francisco). “We all had to agree to things we do not like.”

Perhaps most striking are its similarities with a budget signed only a year ago by Gov. Gray Davis, whose fiscal policies led voters to drive him out of office. The state will keep spending more than it takes in. The budget is packed with optimistic assumptions. And, once again, lawmakers are punting the shortfall into the future.

“Little has changed from last year to this year,” said Assemblyman Keith Richman (R-Northridge). He says he looks at the budget and sees all the same things that troubled him last year: “borrowing, a continuing structural deficit and multibillion-dollar shortfalls in future years.”

The package is not without pain. Money for cities and counties would be cut by $2.6 billion over the next two years. School spending would go up, but much less than anticipated. State universities would be forced to make cutbacks; tuition would rise and community college fees would go up.

A cost-of-living increase for welfare recipients would be delayed three months.

Still, Bill Whalen, a research fellow at the Hoover Institution, a think tank based at Stanford University, and former advisor to Gov. Pete Wilson, calls it a “getting-by budget.”

“The Democrats get by without drastic cuts in social services, and the governor gets by without raising taxes,” he said. “It suits both their short-term needs.”

But in the long term, it will cost taxpayers quite a bit.

The proposed budget has so much borrowing and so few long-term spending cuts that the state will be facing yet another fiscal crunch next year. Economists say it would take an upswing in the economy of dot-com boom proportions to avoid it.

“I just don’t see the economy bailing us out under any foreseeable circumstances,” said Michael Bazdarich, senior economist with the UCLA Anderson Forecast.

“It frustrates me how little progress we are making in this budget,” he added. “This is the fourth year this deficit problem has been around. The steps we are taking to solve it are pretty tiny for this late in the game.”

The budget plan does rein in some spending. In a year when California is projected to grow by 600,000 people and inflation is likely to drive costs up, the money spent on government programs will not be keeping pace.

Overall spending will go up by less than 1%. In a typical year it goes up several times that.

But the temporary cuts to schools and local governments will help the state keep spending down. They have been given assurances that two years from now the state will return to giving them more money.

That will leave lawmakers and the governor with few places to turn to close a shortfall of as much as $10 billion that is projected to emerge in 2007.

Schwarzenegger, who promised to bring an end to “crazy deficit spending,” says that he would have liked to cut more, but that he is making good progress at closing the budget gap, considering the circumstances.

“When I was lifting weights, sometimes I was shooting for a 500-pound lift and maybe I ended up 495,” he said. “But I still was happy with it.... The state had a gigantic problem when I took over. You can not fix those problems overnight and not also in one year.”

One problem he hasn’t fixed is ridding the budget of what he calls “gimmicks.” Schwarzenegger complained that he inherited billions of dollars in debt because the Davis administration filled its budget with overly optimistic assumptions.

Now experts say Schwarzenegger is doing the same. Case in point: the $450 million the governor says can be saved by directing 75% of all punitive damages awarded in civil lawsuits to the state. There is no study that suggests such a policy change would generate nearly that much. The result: Add up to $450 million to next year’s budget gap.

Whalen, of the Hoover Institute, says the state’s fiscal troubles can be summed up fairly simply.

“Our fundamental problem is we have champagne taste with a beer budget,” he said. “Every year we try to squeeze and squeeze and squeeze. The state can’t keep pace.”

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A look at the numbers

California’ proposed budget includes the following:

2004-05 General fund expenditures (dollars in billions)

K-12 education: $34.1

Health and human services: $25.5

Higher education: $9.4

Youth and adult correctional: $6.4

Courts: $1.7

Resources: $1.0

Tax relief: $0.7

State and consumer services: $0.5

Business, transportation and housing: $0.4

Environmental protection: $0.1

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Source: California Department of Finance