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Budget Comes Home to Roost… by Tom McClintock [politician] 10/12/07

The Sacramento Bee -- which was the most vitriolic of the newspapers when I warned last summer that the budget was dangerously out of balance and filled with accounting gimmickry, wishful thinking and outright deceptions -- today reported that the budget is now, well, dangerously out of balance.  I’m sure they’re shocked-just-shocked.

The Bee reports that based on shortfalls in revenues from the “Big Three” taxes (income, sales and corporate) next year’s deficit is now estimated around $8.6 billion, and this year’s budget could be $2.5 billion below projections. 

You can read my analysis of the budget – written last July – here.  Suffice it to say there’s no excuse for being surprised. 

But I’m afraid once again the Bee understates the problem.  The Controller’s cash report for September was also released today, and the situation is significantly worse than the Bee reports.

For the first three months of the fiscal year, the state has spent $10.161 billion more than it has taken in.  It’s not unusual for the state to run a deficit in the first quarter – but this one is nearly a billion dollars bigger than the deficit in the first quarter of last year – and last year produced the biggest budget deficit in the state’s history.  On September 30th of last year, California actually had $1.387 billion in the bank.  We closed the books this September WITH AN OVERDRAFT OF $7.699 BILLION – all being covered by internal borrowing (the equivalent of raiding Junior’s college fund).  In other words, the state’s cash position has deteriorated by $9.086 billion over the last 12 months.  That’s the actual measure of our year-over-year deficit.

Let me put it yet another way.  We took in $21.917 billion in revenue in the first quarter of last year.  We have taken in $21.717 billion in the first quarter of this year.  Remember that the governor’s budget required 5.8% revenue GROWTH, but our revenues are not only not growing, they’re actually shrinking by nearly a full percentage point from last year.  If this continues, the revenue shortfall alone will be more like $7 billion THIS YEAR, starting the NEXT fiscal year that much deeper in the hole.  And that’s before we account for all the Enron-style gimmickry. 

For example, the Bee also reports that the $1 billion sale of the Ed Fund is no longer likely to take place this year, and the state has already lost a $500 million court battle on pension contributions for which it failed to budget (all outlined in my July letter, which the Bee called “grandstanding” and “catering to special interests”).  And there’s more to come.

Meanwhile, the governor yesterday unveiled the most expensive bureaucratized health program ever proposed in California, similar to plans that have utterly wrecked the finances of other states that have tried it.

As Reagan once said, “You could say they were spending like drunken sailors, but that would be unfair – to drunken sailors.” CRO

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