Tuesday, May 8, 2012

WHY IS CALIFORNIA'S BUDGET CONTINUOUSLY IN DEFICIT?

WHY IS CALIFORNIA'S BUDGET CONTINUOUSLY IN DEFICIT? In California, the state constitution requires the Governor to introduce a budget bill for the support of state government operations each year by January 10th. The constitution also requires that the budget presented by the Governor be "balanced" - that is to say that all appropriations and estimated expenditures not exceed available resources for any given fiscal year. Also, the state constitution requires the Legislature to pass a "balanced budget" and send it to the Governor by June 15th each year. So Why all the deficits?
First, the legislature has made the June 15th deadline only a handful of times in the last 20 years. Second, budgets can be "balanced" by making assumptions about expenditures and revenues that are unrealistic. For example, if the economic forecast is overly aggressive and the state GDP estimate is too high, the revenue estimate will be off - sometimes considerably. Also, if enrollment, caseload, and population estimates are too low, then expenditures can be significantly higher than estimated for budget purposes. Prisoners have to be fed, children educated and health and many welfare programs are entitlements so you pay what the case load demands. Finally, you make assumptions about pending court cases and if you loose, the results can, and in numerous cases have been, multi-billion holes created in the state spending plan when the courts "unwind" certain "solutions". The cumulative effect of these types of challenges is that a "balanced budget" with a two or three percent reserve can quickly turn into a multi-billion deficit spending plan and that is exactly what has happened in California many times.

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