Welcome To The New Fiscal Year. Same As It Ever Was

Say good-bye to California’s 2007-2008 fiscal year. It ends June 30. At midnight, the 2008-2009 fiscal year begins. 

It begins as last year’s did – without a budget. Last year, a budget wasn’t passed until August 24, 55 days into the new fiscal year. 

The constitution requires the Legislature to send a budget to the governor by June 15 so he can work it over, sign the thing, and have a spending plan in place by July 1 to dictate, in this instance, how more than $144 billion in revenue and bond funds get spent. 

That’s a significant chunk o’ cash sitting around waiting to get spent. 

The budget is the most important public policy utterance made each year by the governor and the Legislature. It says what the state’s priorities are by directing how taxpayer dollars get spent. Again, it’s not an insignificant sum. 

Despite that truth, more attention has been focused this year on unsuccessful bills to ban helium-filled mylar balloons and to require spaying and neutering of animals.  

This is not a new phenomenon.

 Back in 1988, Byron Sher, then a Palo Alto Assemblyman, introduced a bill on behalf of the Redwood City Bluebirds to make banana slugs California’s official state mollusk. 

The measure drew so much coverage — statewide and internationally — that a study was conducted to compare the amount of media attention the slugs got compared to that year’s budget.  

Banana slugs in a landslide. 

Budgets don’t make for easy news stories. Budgets are complicated. Lots of numbers are involved. It can be challenging to humanize the contents or make readers and viewers feel a connection to it in their day-to-day lives.  

But its still the most important thing the governor and the Legislature do each year so it would be nice if they did it – responsibly and in a timely manner. 

Roughly outlined there is a gap between spending commitments and revenue of more than $15 billion, a little over $17 billion if you create a reserve account the GOP governor seeks. 

Democrats insist that between $6.4 billion to $11.5 billion of that hole gets filled by increasing taxes or fees, which don’t require a two-thirds vote for approval. 

Without new revenues, important services provided by state government would be curtailed, as would the state’s contribution to public schools. 

Republicans say they will refuse to vote for a tax increase. Not no way. Not no how. The state just needs to tighten its belt the way an average family of four does when cash gets short.

The governor has said he personally opposes tax increases but is open to the Legislature’s ideas, which may not be a punt but certainly sounds like it. 

The state is, as the cliché goes, at loggerheads. And every party involved shows scant motivation to change that condition. 

Of course, there isn’t a lot of pressure on them to complete the job. 

Court rulings over the last 15 years have pretty much allowed the state to keep writing checks in the absence of a budget. The only state employees that seem to get stiffed are the legislative ones, a nice irony since their bosses helped create the inconvenience for them. 

Persons get their unemployment insurance, workers compensation and welfare checks so nothing dire happens if lawmakers and the governor take their sweet time about reaching a solution.  

This year, there is some horrendous cash flow borrowing train wreck that occurs in late July or August if there is no budget. Perhaps that will serve as a goad. No breath holding, however. 

The governor and Republican lawmakers want to sweeten the budget deal with some “structural reform.” 

Republicans have called for “structural reform” in any number of guises since Gov. Pete Wilson did in1991 and no doubt his predecessors did too. 

This year’s “structural reform” from the legislative Republicans is to add a second spending limit. California has had a spending limit for over a quarter century and the budget still routinely ends up out of whack. 

In addition, the state maintains two funds to stockpile revenue for potential budget shortfalls. 

The older of the two is the Special Fund for Economic Uncertainties, which has been around 20 years or more. The newer one is the Budget Stabilization Account created by Schwarzenegger’s Propositions 57 and 58 in 2004. 

Gov. Schwarzenegger wants to create a third rainy day account to hold monies in reserve so that the feast-and-famine cycles of the state’s budget are smoothed out. 

That’s all very admirable but it’s the new fiscal year. The budget is overdue. There’s been six long months to debate “structural reform.” 

The Democrats, for their part, insist on a tax increase but won’t say what flavor they prefer.  Previously, California’s Capitol has catalogued some of the options. It’s long since time to pick. 

Not that he is a paragon but former Gov. Pete Wilson felt a keen obligation to solve the ugly fiscal mess left steaming on his plate when he took office in 1991. 

As part of his strategy to combat it, he proposed tax increases, which earned him the ire of the Assembly GOP caucus. And he personally rounded up the nine Assembly Republican votes to approve them. 

Wilson proposed cutting welfare benefits, eliminating automatic annual cost-of-living increases for state programs and a host of budget-balancing proposals as unpalatable to Democrats as the tax increases were to him. 

Polls were not kind to the GOP governor. 

The cash shortfall was bad enough that Wilson didn’t wait until the May Revision but offered a second budget proposal in April with nearly $7 billion in taxes, more than doubling the level in his January budget. 

At the time, this was the worst fiscal disaster the state had ever faced. By percentage, the gap represented one third of the general fund. This year’s problem is between 15 percent and 17 percent. 

Despite the severity of the 1991 shortfall, a budget was on Wilson’s desk by June 20. The bills to balance it, like the tax increase, were still pending. Wilson vowed to veto the budget he had fought for unless he got the other bills at once. 

In the end, Wilson and the Democratic leaders felt a higher responsibility to fix the budget mess than cloistering themselves inside of their ideological boxes. That’s what they were elected to do, after all: Solve problems. 

Democrats cut welfare payments and suspended automatic annual increases in state programs for five years. Wilson raised taxes at the risk of his presidential ambitions and re-election as governor.  None won popularity contests among their constituencies for the deal they struck. 

But they all managed to reach an accord 10 days before the start of the new fiscal year. 



Filed under: Budget and Economy


  1. California still doesn’t have a budget…you can create your own version of the state budget with the Next 10 Budget Challenge. The nonpartisan Challenge allows you to go through the steps of deciding what to spend and what to tax to see the tough choices involved. Try it! http://www.next10.org/challenge

    Comment by BudgetMaster — 7.02.2008 @ 1:34 pm

  2. Thanks for this info, its great. Do you have any more resources or links you could post?

    Comment by Workers Compensation — 5.22.2009 @ 4:56 pm

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