Spotlight on the States: California

While we are keenly aware that the "F" in CRFB stands for "Federal", it is difficult to ignore the budget plight of the states. According to the Center on Budget and Policy Priorities, 48 out of 50 states faced budget deficits in fiscal year 2010, "totaling $191 billion or 29 percent of state budgets – the largest gaps on record." And just as a new Congress in Washington begins to grapple with reducing the federal budget deficit, governors and legislatures in the states must also work to close yawning fiscal gaps this year.

The woes at the state and local level can have an impact on the federal budget, as well as the national economy. States relied on federal stimulus funds to help close budget gaps in the past two years. But lawmakers in DC, intent on slashing federal spending, are making it clear that states should not expect much more help from Washington. Meanwhile, some observers fear that many localities will go bankrupt.

With all this in mind, The Bottom Line will spotlight the states in a new blog series. First up is California.

California has been in a state of fiscal crisis for several years -- the budget drama in Sacramento has often made the fiscal follies in Washington, DC look rather tame and efficient in comparison. In November 2010, California's Legislative Analyst Office projected California's budget deficit to be $25.4 billion through June 2012 (California's fiscal year begins July 1). To get some perspective on that number, the total budget for FY2011 that was passed in October was $86.6 billion - a budget deficit of $25.4 billion would be over 29% of that total budget.

Now the latest governor is hoping to restore fiscal sanity. In response to California’s massive deficit, Gov. Jerry Brown (D) released his state budget proposal on January 10. His proposal, which he described as “a tough budget for tough times”, calls for $12.5 billion in spending cuts and $12 billion in revenue increases.

The proposal includes:

• Reducing funding for Medicaid and other welfare programs by $3.2 billion
• Cutting funding to local libraries by $30.4 million
• Increasing fees for Cal State students by $654 per pupil and University of California students by $822, with both school systems losing $500 million each in funding
• Cutting funding for the Department of Developmental Services (which assists those with disabilities) by $750 million
• Shutting down state parks with lowest attendance and reducing the hours of many others
• Reducing pay of unionized state workers not currently covered by contracts by 10%, saving the state $308 million
• Reducing services to the elderly offered by the state’s in-home care program
• Consolidating and/or eliminating various state offices, saving the state $7 million
• Slashing the governor's office’s spending by 25% ($4.5 million)
• Extension of higher taxes ($12 billion)

Gov. Brown hopes to hold a special vote in June, letting voters decide whether or not they agree to the revenue component of his budget proposal; Californians will vote on whether or not to extend several temporary tax hikes that were enacted in 2009 for five more years. His hope is that voters will agree to the temporary tax hikes to avoid even deeper budget cuts than they already face.

The experience in California portends the difficulties that policymakers in Washington will face in confronting the fiscal gap. Gov. Brown’s plan, like many federal fiscal plans that have been recently introduced, makes tough choices that rankle constituencies on both ends of the political spectrum. A spokesman for the Howard Jarvis Taxpayers Association has already stated that the budget "proposes the largest tax increase in the history of all 50 states”, and Jean Ross, executive director of the California Budget Project, released a statement saying that the plan “proposes deep cuts that will weaken the public structures that many Californians rely on…protecting our core public systems and structures is essential for securing a prosperous future and paving the way for an economic recovery.”

Jessica Levinson, political reform director for the Center for Governmental Studies in Los Angeles, echoed a theme embraced by many fiscal reform advocates in Washington when she said that “Everyday Californians should understand that there is something here for everyone to hate, little for anyone to like. Democrats will scream at the top of their lungs about the cuts in this and Republicans will abhor the tax increases.”

Brown’s plan is representative of the types of measures that will have to be embraced all around the country, at both the state and federal level. Hopefully his example will inspire others to take action and come up with their own fiscal plans in response to the massive deficits we all face.

Get a feel for the hard choices facing California with the California Budget Challenge, and then check out our own "Stabilize the Debt" simulator to tackle the U.S. budget.