State Budget Woes - January Timebomb

Here is an Oakland Tribune editorial that has the ring of real-world sensibility to it.

A budget land mine is in the path of California's fiscal future. It's been there for several months waiting to go off on schedule in January. It's the budget trigger that could mandate up to $2.5 billion in additional state spending cuts, most of which would be borne by already diminished K-12 education funding.

Gov. Jerry Brown's and the Legislature's hope was that somehow an additional $4 billion in previously unanticipated capital gains tax revenues would appear in time to defuse the trigger.  But as the state's weak economy continues without significant recovery in sight, it is, or should be, clear that billions of extra tax money is not forthcoming.

I missed this next part, but it is unfortunate that the Supreme Court keeps meddling in things they have no real-world understanding of

Adding to the state's fiscal woes, the California Supreme Court stayed legislation that dissolved California Redevelopment Agencies. That means the state won't be able to grab $1.7 billion from redevelopment districts.

The money that wasn't there in June, when the budget was passed is still not there today and is not likely to be there before the December deadline on deciding whether to deploy the trigger in January.  It was a mistake to rely on rosy capital gains tax projections to balance a state budget, as their record of volatility demonstrates.

Boy is that an understatement--too bad more newspaper editorial boards (like our local ones) don't understand this!

But the worst is yet to come. If the trigger is pulled in January, K-12 schools might lose up to $1.5 billion in funding and be forced to cut their academic years by seven days. However, even that would not be enough to accommodate the trigger.

What is most dismaying is that the budget land mine that is about to explode in January is not a one-time disaster. Unless there is a major overhaul of fixed state costs, such as pensions, there will be no real fiscal relief for years to come.

California also needs to place a freeze on selling bonds, including the $10 billion bond authorized to build the state's high-speed rail boondoggle. Interest on state debt is at a high 7.8 percent of budget, nearly twice the national average even with low interest rates. It cannot be allowed to grow.

We hope that should the current budget implode that at least some lessons will be learned and that the necessity for structural reforms finally will lead to action.

Sorry for the Monday morning downer................

Comments

[Rich]

NYT article on the pension crisis in Rhode Island. Is this what California will be facing in 5-10 years, if not sooner?

http://www.nytimes.com/2011/10/23/business/for-rhode-island-the-pension-crisis-is-now.html?_r=1&sq=rhode island&st=cse&scp=2&pagewanted=all

[Lamont Relish]

Amazing. I posted the same article just around the same time. And the answer to your question is YES, and sooner than 5 years. The money has run out.

[Account Deleted]

Measure D passes - Palo Alto voters reverse binding arbitration for public safety employees:

http://peninsulapress.com/2011/11/08/palo-alto-measure-to-limit-unions-bargaining-power-leading-in-early-returns/

[Account Deleted]

Pension reform measures watched across California:

http://www.mercurynews.com/news/ci_19299767

[Account Deleted]

John Horgan's commentary re: Council special public session this Tuesday evening with AFSCME union members:

Tuesday, November 15, 2011

Burlingame's Dilemma is a Microcosm of California

It would not be a stretch to point out that what happened in Burlingame Tuesday night was a microcosm of what bedevils the cash-strapped state of California. For nearly two hours, the City Council pondered the conundrum of finding fair and reasonable ways to cut its retirement costs, particularly its huge unfunded retiree health care guarantees. It was an illuminating session, held in a basement meeting room in the community's Main Library. In fact, at times, it resembled a contract negotiating session as public employee union members (all of them non-safety types) went back and forth with city officials, including City Manager Jim Nantell, who has been sounding the alarm about retiree benefits for more than a decade. For Burlingame, it turns out that there are more retirees receiving guaranteed health care benefits than current workers. The unfunded liability for those perks is approaching $80 million and rising, according to Nantell. Councilman Jerry Deal noted that the city's operating revenues are about $41 million, roughly the same as they were a decade ago. The disconnect between what's owed public employees in the future and annual revenues is at the core of Burlingame's long-term fiscal problem which has been made worse by the ongoing economic downturn. And that's one of the main reasons the town's workers are balking at any agreements that would trim back those lucrative retirement benefits. If all of this sounds familiar, it should. The state is facing the same thing, only on a grand and highly disturbing scale.