A New Deficit in the Budget

Theleast-surprising news of the past week: Despite months -- or was it years? -- ofblood, sweat, arm-twisting and deal-cutting that led to February's budget dealto seal what was then a $42 billion gap, a new deficit has popped up.

That'saccording to a report by the nonpartisan state LegislativeAnalysts Office released Friday.

And asbudget shortfalls are wont to do, analysts expect this gap to continue to growif no action is taken -- to $12.6 billion in 2010-11, to $26 billion by2013-14.

Thosefigures could prove to be unrealistically gloomy if the recession ends thisyear as Federal Reserve Board Chairman BenBarnanke said Sunday it might.His scenario, though, was predicated on an even bigger "if" thatinvolved healthy financial and banking systems. The immediate reaction to thatstatement was lower trading for the dollar in Asian markets, which apparentlyunderstood the enormity of Barnanke's "if."

On thestate level, whether the Legislature and Gov. Arnold Schwarzenegger have even managed toclose the $42 billion gap still is an "if" that requires voterapproval May 19. If one or more of the budget measures -- a $6 billioncombination of temporary tax increases, redirecting money dedicated to childrenand mental health and borrowing -- the state has an even bigger problem on itshands.

"Ifthese measures were to fail, the Legislature would need to quickly develop evenmore solutions before the start of the fiscal year as alternatives." theLAO said.

What a great sense of humor. Officials took months to come up withthe $42 billion solution. What are the chances they'll be able to reachagreement on a new one between May 19 and July 1 if the voters defeat themeasures?

Anti-taxgroups already are incorporating Friday's LAO report into their "defeatthe propositions" rallying cry, using the new data as "evidence"that the state can't get the numbers right.

"Theircampaign was based on a shaky foundation as far as credibility goes . . . andthis isn't going to make it any better," Jon Coupal, president of theHoward Jarvis Taxpayers Association, toldThe Los Angeles Times.

Temptingas it is to mutter "a pox on both their houses" and blame theLegislature and Schwarzenegger for this, that's just not true.

"Unfortunately,the state's economic and revenue outlook continues to deteriorate,"the LAO report says, quite correctly:

  • The state's unemployment rate rose from 8.7 percent in December to 10.1 percent in January. The national unemployment rate rose from 7.6 percent to a 25-year high of 8.1 percent in February. Some expect it to reach 9.4 percent nationally. Heaven help some California counties, where unemployment already tops 20 percent, if that happens.
  • The federal government reported that gross domestic product for the fourth quarter of 2008 fell at a 6.2 percent annual rate, worse than the expected 3.8 percent drop.
  • Receipts for the state's big three taxes (personal income taxes, sales and use tax and corporate income tax) were $815 million below the forecast for February.

With theexception of the last, which clearly is tethered tightly to the first two,those are national problems. Short of placing a McDonald's "hamburgerssold" style tote board atop the Capitol -- 16,531,800 now out of work! --it's hard to see how the state could improve its projections.