More Crisis Coming, As Expected

Yesterday Karen Bass let it slip that the state budget projections were coming up short and another revenue gap would have to be filled by June. Now there's independent confirmation of this, courtesy the Legislative Analyst.

The Legislature's budget analyst, Mac Taylor, declared today that the immense package of spending cuts, new taxes and loans aimed at closing the state's $40 billion budget deficit will fall short by $8 billion because the state's economy is continuing to falter.

"Unfortunately, the state's economic and revenue outlook continues to deteriorate," the Legislative Analyst's Office (LAO) said in a review of the package, which covered the remainder of this fiscal year and all of the next.

"Even in the few weeks since the budget was signed, there have been a series of negative developments. Our updated revenue forecast projects that revenues will fall short of the assumptions in the budget package by $8 billion. Consequently, the Legislature and governor will need to adopt billions of dollars in additional solutions in the coming months to bring the 2009-10 budget back into balance."

Taylor had some more bad news for the state's political leaders. Because so many of the "solutions" adopted last month are temporary, "without corrective actions, the state's huge operating deficits will reappear in future years - growing from $12.6 billion in 2010-11 to $26 billion in 2013-14."

This is a powerful argument for continued structural reform. Otherwise, we will keep offering insufficient short-term solutions that will collapse in a matter of years. And the result will be severe deficits, reduced services, and lots of people out of work. Having won the court battles, the Governor now has the furlough bullet in his chamber and he will not be afraid to use it.

In the short term, there are a number of steps that can be taken. It continues to be insane to leave as much as $10 billion in Medi-Cal spending from the federal stimulus on the table because the legislature won't change the eligibility rules. They have until July 1 of this year to do so, and let's remind everyone why they changed these rules in the first place - to get poor families mired in red tape and cheat them out of services.

Had lawmakers and Gov. Arnold Schwarzenegger enacted the budget on time, prior to the start of the current fiscal year on July 1, there would be no problem.

However, since the budget signed by the GOP governor was a record 85 days late, an attempt to save $70 million by changing eligibility rules for children receiving care from Medi-Cal prevents the state from qualifying for the federal money.

The change requires children to fill out a report every six months confirming their continuing eligibility along with their parents who were already filling out such reports.

Critics of the requirement say that most of the children who lose eligibility do so because they forget to turn in the paperwork, not because they actually lose eligibility. Sorting out such issues increases Medi-Cal costs to counties, who administer the program locally.

In addition, by maximizing the use of the stimulus money, the state can clear the trigger hurdle so that the worst cuts are spared (for now) and tax increases are reduced. Sure, this will probably be the first area we go back to when negotiations resume, but at least they wouldn't be on the books currently, reducing the even more draconian measures that would be further needed. The Administration doesn't want the trigger to go off because the deficit would widen, so they're lowballing the figures. But the legislature could absolutely get the kind of dollars necessary from the federal government to fill in that money.

Then there are the half-dozen ballot measures on May 19, three of which directly impact the budget deficit and would grow it by about $6 billion (that would be 1C, 1D, and 1E, the measures that would sell the lottery and raid voter-approved funds for children's programs and mental health). I actually think this revelation that the budget is already in deficit will make proponents' jobs harder. Sure, they'll try scare tactics (don't make the deficit bigger), but this undermines confidence in a deal that essentially the voters are being asked to ratify. Schwarzenegger's star power is on the wane with his approval ratings, and his failed leadership can be seen by the numbers.

In the longer term, today's news screams for additional budget reform. Schwarzenegger predictably doesn't want to repeal the anti-democratic 2/3 rule, preferring a Rube Goldberg approach that will not work. But this is the linchpin to political reform in the state, with a Constitutional convention being the other big idea. Without either, we will continue to lurch from crisis to crisis.