California budget update

The negotiations and desperate scramble to find $20 billion somewhere, anywhere, to close the 2010 California deficit continue.  In a major body blow, the federal government has pulled $2 billion in expected funding for California after House Democrats killed a state funding package. Yes, it was killed by Democrats, apparently over jitters about the deficit.

The total package was $24 billion of which California would have gotten $2 billion. This is bad news for California which was expecting the money to help offset the deficit. Governors of all the affected states are lobbying DC hard to bring back the funding, warning of dire consequences otherwise.

Two bills that will improve the budget process have passed the state Senate but face uncertain prospects in the Assembly. SB1426 mandates that the governor submits a two-year spending plan and a five-year fiscal forecast to the Legislature every other year starting in 2011.

SB1020 requires performance-based reviews of all state programs at least every 10 years. Well, these are fine ideas. But they take place in the future and do little to help the current, serious budget crisis.

The best possible way to speed the budget process is to rescind the existing law that budget matters must pass by a two-thirds majority and make it by a simple majority instead.  This is what most states do. Making it a two-thirds majority means a determined minority can, and in the case of the California legislature, have repeatedly blocked budgets from passing.  This is not democracy but more like the opposite of it.

As an example of how dire things are getting, community colleges have turned away 140,000 students in the past year due to budget cuts even as their potential enrollment swells due to rising unemployment and record numbers of high school graduates. Their budget was cut 8%, which forced them to drop classes. 

Traditionally, in times of recession, young people and the unemployed often go back to school to learn new skills. But now, California’s once highly-regarded community college system can no longer provide education for all that want it, a sad commentary on our times.

The Washington Post notes that California is, in fact, not a high-tax, big-spending state because its state and local taxes rank just 18th among the states, something which is certainly contrary to the accepted wisdom.  However, unfunded mandates and programs that require funds be spent on specific things are prime causes of the budget train wreck. Many of these programs were enacted by propositions which had no accounting for how they would be funded and which force the funds only to be used for specific purposes. This makes closing a budget deficit that much harder, as much of the funding is already spoken for and can’t be used elsewhere – or the funding doesn’t exist at all but is mandated. 

In what promises to be “brass knuckles” politics, big labor unions are trying to enact a law that would force municipalities to get permission from a state board “dominated by union-friendly Democrats” before filing bankruptcy. An amendment says the local government can ignore the findings but the process could still take months. Unions want to prevent municipalities from going bankrupt because then a judge could quite possibly break existing union contracts.  The amended bill is headed to Schwarzenegger who will almost certainly veto it. 

But this is just the opening round. The unions will certainly try again. Deep within this fight and within the larger budget problems are huge and growing liabilities by the State of California which by law must make up shortfalls in public pension funding should CalPERS and CalSTRS ask for it. Both of those public pensions are currently billions short of their funding goals.

In my view, public pension reform in California is Ground Zero for the upcoming budget fights, with at least one union, the state scientists union already agreeing to accept pension cuts for future hires.