Budget redux (5/21/09)

Tuesday, Californians clearly reaffirmed the message that polls had been reflecting as the May 19 Special Election approached. Voters proved unwilling to support five of the six budget measures designed to address current-year and next fiscal-year budget deficits. In February, after months of negotiations, political maneuvering and arm-twisting, Governor Arnold Schwarzenegger and the Legislature passed a budget that attempted to address current-year shortfalls and projected deficits in the pending fiscal year. Passage of the six budget measures was critical to meeting the estimated budget shortfall.

 

The five measures that failed on Tuesday would have created a budget reserve (or rainy-day fund) and extended budget-related tax increases (Prop 1A); restored and guaranteed lost education funding that resulted from the state deficit (Prop 1B); secured funds from the state lottery (Prop 1C); borrowed funds from the state children’s services fund (Prop 1D); and borrowed funds from the recently authorized mental-health account (Prop 1E). 

 

The sixth measure on the May 19 ballot was overwhelmingly approved by the voters. That measure (Prop 1F) prohibits legislators from receiving salary increases during deficit years. Whether or not the measure will have any real effect on the budgetary process, as many have questioned, it clearly demonstrated the voters’ displeasure with their elected officials and their recent budget compromise. While the five defeated measures each failed by more than 60 percent of the vote, Proposition 1F was approved overwhelmingly with 74 percent support. 

 

However, regardless of Tuesday’s outcome, Governor Schwarzenegger had already clarified the state fiscal situation was worse than originally projected. Just days before the election, the governor had released his May Revision (May Revise), which showed the state was facing a $15.4 billion deficit if the budget measures passed. If the budget measures had failed – as they now have – it would increase the state deficit by another $5.8 billion resulting in a net $21.2 billion budget gap.

 

With the election over, the budget remedies rejected, and voters weary, the governor and the Legislature now are faced with addressing the current budget shortfall before the state runs out of money. However, unlike previous budget years—when the governor and Legislature were often mired in prolonged budget impasses in hopes of passing the budget – this year’s budget has already been approved by the Legislature. The challenge the Schwarzenegger administration and the Legislature now face is how to address this new deficit – in light of voters’ rejection of increased taxes and fees, and the outrage against those who supported tax increases expressed with recall efforts.

 

Prior to the May 19 Special Election, the governor and legislative leaders realized the potential for the budget measures to fail, and coupled with recent tax receipts not meeting projections, they immediately began discussing and contemplating their next steps. Governor Schwarzenegger once again called for an “Extraordinary Session,” a special session of the Legislature dedicated to addressing a specific state need or emergency, to address the now estimated $21 billion deficit. He also decided to begin the process of reducing the size of government by laying off state employees. In the meantime, the Speaker of the Assembly (Karen Bass) decided to decrease Assembly expenses by reducing legislators’ office budgets by ten percent.

 

Post Tuesday’s election, a myriad of actions have been set into motion, starting with plans for the first Big 5 meeting since the January budget negotiations. The Big 5 includes Governor Schwarzenegger and the Democrat and Republican leaders from both legislative bodies (Assembly and Senate). These same meetings previously created a firestorm of controversy, as members of both parties were frustrated with not being involved or consulted during negotiations. Meanwhile, Democrat legislative leaders are convening a joint budget committee – a committee consisting of member of both the Assembly and Senate – to specifically address the state budgetary and fiscal woes. Further, Senate Republicans Wednesday morning released their vision or “roadmap” to address the state fiscal problems. 

 

On Wednesday morning in Washington, D.C., following his meeting with Health and Human Secretary Kathleen Sebelius, Governor Schwarzenegger further revealed his plans in light of Tuesday’s election results. During interview questioning, the governor stated his May Revise addressed the $15 billion in cuts he believes are needed and that leaders need to find an additional $6 billion in cuts. Further, he revealed the three primary areas in which he will be looking for additional cuts in spending – education, health care and prisons.

 

Also since the Tuesday election, the California Citizens Compensation Committee (the Commission), which sets salaries for state elected officials, reduced the salaries of all statewide elected officials and all members of the Legislature by 18 percent. Last week, the Commission had attempted to approve a ten percent reduction, but failed to receive the votes necessary. On Wednesday, the salary reduction was approved with a five-to-one vote. They claim the voters’ overwhelming approval of Proposition 1F buoyed their resolve to take this action. They also said that the governor’s plan to lay off 5,000 state workers played a major role in their decision.

 

Over the next couple of months, the budget “dance” will inevitably resurface as the state attempts to close the projected budget deficit. Californians should brace for a very contentious summer as the governor, legislators and special-interest groups try to solve the deficit while protecting their own “perceived” interests. Already, education, corrections, environmental groups and public-employee unions have bristled at the governor’s suggested deficit remedies. As the summer heats up, the political and public-relations campaigns will likewise intensify.