State Budgets: California's Perpetual Budget Crisis Continues

January 02, 2009

California's budget hasn't been balanced in a decade, with each year involving some combination of accounting tricks and borrowing to paper over the shortfall (now estimated to be $15 billion this year and $25 billion next year, out of a $103 billion annual general fund budget). In 2004, voters approved $15 billion in long-term borrowing to pay for short-term expenses, but the accompanying spending controls were weak. (California's spending has grown faster than population and inflation, first due to the tech boom and in recent years primarily due to increased interest payments and increases in local funding to replace a car tax rollback).

California is now having a tough time finding new borrowers, following recent credit rating downgrades. A lawsuit is also pending over an order from Governor Arnold Schwarzenegger (R) for state employees to take two unpaid days off each month starting in February. The Legislature is determined the solution involves raising California's already-high taxes, and legislators recently attempted to ram through $9 billion in sales and gas tax increases, illegally circumventing the two-thirds passage requirement for budgets. Negotiations continue since Schwarzenegger vetoed the Legislature's proposal for not cutting enough spending, and suspended $4 billion in capital projects spending. There has also been talk of withholding tax refunds and instead issuing IOUs.

Schwarzenegger has also organized a reform commission to analyze why the state's budget swing so wildly in booms and busts (probably due to over-reliance on volatile corporate and capital gains revenues).

More on California here.

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