When Mac Taylor, the Legislature’s chief budget adviser, declared this week that the state budget enacted just four months ago is already billions of dollars upside down, no one in the Capitol should have been surprised.
Anyone with half a brain and a hand calculator could figure out that many assumptions on which the budget was based, both spending and revenues, were unrealistic, some of them conjured out of thin air to “balance” an inherently unbalanced budget for political reasons.
Taylor told legislators that the current budget is $6.3 billion out of balance and the 2010-11 budget has another $14.4 billion hole. But, as grim as it sounds, that’s really a best-case scenario because Taylor has a relatively benign forecast of revenues and the underlying economy.
If some of the bleaker economic forecasts kicking around are accurate and/or the state doesn’t act quickly to close the gap, Taylor’s $20.7 billion problem could easily balloon to $25 billion or more. Even more ominously, as temporary tax increases expire and deferred spending promises come due, the state faces annual deficits in the $20 billion range for many years to come, Taylor says.
The battle lines are already forming on whether to deal with the crisis with more spending cuts, more new taxes and/or more gimmicks.
Gov. Arnold Schwarzenegger, who had already conceded that the state has a big new hole in its budget, has said it should be filled with spending cuts, not more taxes. Democratic legislators have been, for the most part, noncommittal. But their allies in public employee unions and other spending interests are already pressing Democrats to block more cuts in health, education and welfare programs and find more revenues.
This week, the California Teachers Association-led Education Coalition fired a salvo of complaints about past cuts on schools, and after Taylor issued his report, the powerful Service Employees International Union declared, “Budget solutions must include new revenue.”
We don’t know whether the ever-flexible Schwarzenegger will stick with his no-more-taxes mantra or, as he has done before, reverse himself. However, February’s temporary tax increases have already stirred a backlash, and hitting taxpayers again in the midst of this record-deep recession would be politically almost impossible.
To raise taxes, not only Schwarzenegger but at least a few Republican legislators would have to agree. That’s probably a non-starter, given the grief that those who voted for taxes received – unless Democrats revive a legally and politically dubious strategy of boosting taxes with a simple majority vote.
They’ve scraped the bottom of the gimmick barrel, voters are livid and new taxes are functionally off the table. This will be one of the bloodiest skirmishes the Capitol has ever seen – with the only option being that the most populous state in the nation default on its debts.