Does Not Compute

A funny thing happened on the way to the budget compromise: numbers may have been just a little fudged.

New reports coming out point to extreme optimism and number crunching errors in the computation of the California budget. After the state faced serious repercussions of a more than $40 billion budget deficit, state leaders reached a compromise at nearly the 11th hour, to raise taxes and cut programs, in order to close the gap. As a result, state officials are now looking towards something of a bailout, either arriving from local hands or from the federal government.

Perhaps better coined a “state-out,” the state appears to have two major options: one, to increase taxes through a series of special election ballot initiatives which would raise funds, by higher taxes and/or program cuts or being delaying or deferring “scheduled payments to schools, local governments, service providers, and others.” The second option is to get additional money from the federal government (stick situation). According to the California Legislative Analyst’s Office, the predicted shortfall of about $13 billion in short-term money is actually more of a shortfall of $20 billion.

An LAO update report was released on May 7, titled “California’s Cash Flow Crisis,” the state’s shortfall of cash is blamed “in part because state revenue collections have been weaker than expected,” and pain is expected to be felt “in the summer and fall of 2009.” The LAO also encourages California leaders to cut the fat and create a “short-term borrowing need” of less than $10 billion for 2009-2010.

What is not being as widely discussed is the last line of the report summary, which is as follows: “We also note that the state should be cautious about accepting additional federal assistance for the state’s cash flow problems, especially given the strings that may be attached to such aid.”

The other option on the table does include asking the federal government to basically back guarantees from the state of California, which has not exactly received a warm reception in Congress. It is fascinating, however, that the LAO would so strongly caution against borrowing from Congress, particularly in the wake of exactly what the LAO warns against: some federal stimulus money has been threatened to be cut off in California, unless California leaders enact certain concessions.

In Shakespeare’s Hamlet, Polonius advises his son “neither a borrower nor a lender be,” to protect against owing anyone too much. Methinks Master Shakespeare would have made for a heck of a California representative, particularly today.