The Year of Magical Thinking

By :: October 12th, 2010

It’s never really fun to say “I told you so.”  Well, it’s a little fun.  The Germans even invented a word for this – Schadenfreude – which loosely translates as “sour grapes.”

Maybe it’s sour grapes that has the rest of the country repeatedly turning to California’s budget mess.  Or maybe California is just always in a budget mess.  Indeed, the state has faced operating shortfalls – or gaps between inflows and outflows – in every year since 2002

But this year, it would seem that state lawmakers and outgoing Governor Arnold Schwarzenegger have really outdone themselves.  They busted through last year’s tardiness record by enacting a budget 100 days into the new fiscal year.  Like last year, they balanced the books – but with a combination of spit and polish and pixie dust

In particular, they assumed that the feds would pony up $5.3 billion, although only $1.3 billion has been promised so far (as an internal presentation said:  “Still more work to do in Washington”).  They hoped for a speedier economic recovery ($1.4 billion).  They borrowed from internal funds ($2.7 billion) and deferred payments to schools and community colleges ($1.7 billion).  They also suspended a Net Operating Loss tax deduction ($1.2 billion) and planned to sell and lease back 11 state properties ($0.9 billion) – actions which simply put off today’s problems until tomorrow.

To be sure, states often substitute happy thoughts for hard choices.   And all states – not just California – are still reeling from the recession, when they suffered their worst revenue declines on record as caseloads mounted for Medicaid and other public assistance programs.  Although the latest data show a slight uptick, state and local revenues remain essentially flat.   Meanwhile, state and local governments are slashing payrolls to make ends meet.

California’s budget also makes some real cuts – including $1.6 billion from pay and benefits.  And it increases employee contributions toward retirement for all new hires and ends the practice of “spiking,” or boosting final salaries to raise pensions.  These reforms may pave the way for other states, which together confront unfunded promises of more than $1 trillion

Finally, in his last California budget deal, the Governor insisted on a constitutional amendment increasing the maximum size of the rainy day fund and requiring deposits of above average revenues.  Of course, this measure would have to go on the ballot – and voters rejected a similar proposal just last year.  Some would call this sunny, California optimism while others would say it’s Peter Pan naivete.

Unfortunately, it’s no fun to be right when it comes to calling bad news, but sometimes you’ve got to at least start fixing the roof when it’s still raining.  Wishing for the sun to come out is just not enough.

5Comments

  1. Anonymous  ::  11:12 pm on October 12th, 2010:

    No mention of California requiring a 2/3 majority to pass a budget? No mention of Prop 13?
    How exactly would you suggest that they fix the issue?

  2. Anonymous  ::  11:52 pm on October 12th, 2010:

    California's endless budget creativity should prove once and for all that a balanced budget amendment at the federal level would be completely ineffective. No matter how big the hole gets, politicians will keep digging. It's the way of the world. Only a collapse can change things. Since change is inevitable, so is a collapse. QED.

  3. Anonymous  ::  2:49 pm on October 13th, 2010:

    It is time for Prop 13 to go. Jurisdictions that can raise property tax rates more easily (to keep tax payments constant due to lower values) have not done too badly in this climate. Until 13 goes, Cali is doomed.

  4. Anonymous  ::  11:46 pm on October 13th, 2010:

    Governor Schwarzenegger has labored heroically in the cesspool of California politics. Sadly, the cesspool usually wins. Even now, the budget has all the trustworthiness of the town drunk's pledge to go sober.

  5. Anonymous  ::  4:23 pm on October 18th, 2010:

    Sour grapes is not the same thing as schadenfreude. Schadenfreude is joy in other people's suffering, whether or not you can say “I told you so.”
    Sour grapes is what you say when you really tried hard for something, didn't get it, and try to save face by saying you didn't really want it anyway.