California's Budget Woes

While change in our federal government and crisis in the global financial system dominate the headlines, Californians have our own local issues. This post is not about the disappointment of the passage of Prop 8, but of the looming fiscal crisis facing our state government.

We are facing an estimated $11B shortfall in the 2008-09 fiscal year (Jul-Jun), on revenues of over $100B.

For a quick history, in September 2008, Gov. Schwarzenegger and the state Legislature agreed to a 2008-09 budget which projected a $1.1B deficit for the year. The state was able to pass this budget because sufficient reserves were available to cover the deficit. However, an unexpected shortfall in tax revenues left us with a $1.1B deficit in the first quarter alone (Jul-Sep 08). The global economic slowdown is the likely culprit, drastically reducing personal income, corporate, and sales tax revenues.

Last week, Gov. Schwarzenegger called for a special legislative session and announced his plan for solving our current budget crisis. Here are the major points (and 2008-09 FY impact):

Revenue
Increase state sales tax by 1.5 percentage points to 6.5% for 3 years ($3.5B)
Expand sales tax to cover services previously exempted, including sporting event tickets, furniture and automotive repair, and golf ($357 mil)
Oil severance tax of 9.9% on every barrel of oil produced in California ($528 mil)
Increase alcohol excise tax by 5¢ per drink ($293 mil)

Spending
Cuts to the K-12 education and the community college system, while still adhering to the minimum spending requirements from Prop 98 in 1988 ($2.5B)
Cuts to the UC and Cal State University systems ($132 mil)
Reduce SSI/SSP grants to Federal minimum levels ($349 mil)
CalWORKs streamlining and grant reductions ($274 mil)
State employee pay reductions: mandatory unpaid day off each month, eliminating two work holidays, and stricter definitions of pay and overtime eligible hours ($320 mil)
CDCR reform: reassigning parole officers from low-risk non-serious offense parolees to maintain full time supervision for high-risk violent crime parolees ($78 mil)
Reassignment of Public Safety grant payments from the General Fund to other sources ($250 mill)
Reduction of Medi-Cal benefits to match other states, and removing some optional coverage ($41 mil)

Immediately after his announcement, groups everywhere began decrying Gov. Schwarzenegger's plan. Students and faculty at SF State staged a sit-in to protest cuts to the CSU system. The SEIU is planning to aggressively fight the proposed mandatory furloughs for state employees. Raising taxes runs afoul of his Republican allies.

Yes, it sucks, but in times like these, sacrifices must be made. Yes, education cuts won't help the fact that our school system is in shambles. Many state employees are going to have to exchange 12 days pay for 12 days off. We're all going to pay more (or cut back on purchases) via the increase in sales tax. It's going to take a lot of sacrifice from people across the spectrum just to get us to a budget that everyone's going to hate – but this sacrifice is necessary. President-elect Obama knows this, and has called on all of us to join in. We would be wise to follow through on the change for which we've fought.