During the annual – or, perhaps, perennial – impasse over the state budget, those in and around the Capitol play a little guessing game, called the budget pool, on when it will be enacted.
Gov. Arnold Schwarzenegger signed the budget Tuesday with none of the usual hoopla, symbolizing official embarrassment over both its record tardiness and its failure to close the chronic deficit.
And now there's a new guessing game: How long until it falls out of balance? The answer: One nanosecond. Or as state Controller John Chiang says, "Today we adopted a $103.4 billion budget that was out of balance the moment it was signed."
Those familiar with the state's convoluted finances know the budget's revenue assumptions are out of whack, rendered unreliable by an economy that's slumping much more quickly and much more deeply than economists previously believed.
A recession that began in the overheated housing market has spread to other sectors, especially retail, and California now has one of the nation's highest unemployment rates at 7.7 percent.
The months-old revenue estimates are based on an assumption that economic recovery begins this fall. Real revenue is already falling short of estimates and as signed, the budget has only a $1.7 billion emergency reserve, which may mean, in real terms, that the budget is already upside-down.
Those highly questionable revenue estimates have been carried forward into initial planning for the 2009-10 fiscal year that begins next July. Budget director Mike Genest said Tuesday that the state is looking at a $6 billion deficit next year, but that the administration is assuming that the state can sell $10 billion in bonds backed by state lottery revenue and use $5 billion of the proceeds to cover next year's gap, thus reducing the problem to $1 billion.
Genest acknowledges, however, that there's "a lot of uncertainty about that number." That relatively rosy scenario depends on current revenue estimates holding up, which would be impossible if the recession extends and deepens; on voters approving changes in the lottery at an election next year, which is far from certain; and on lottery bonds being marketable to some large financial institution with the credit markets in turmoil.
If the recession continues and lottery bonds aren't available, the 2009-10 gap could easily be $10 billion or more, meaning the governor and the Legislature would be right back in the soup.
Finally, the state will soon be asking those lenders to advance the state as much as $10 billion in short-term loans, called "revenue anticipation notes," to finance spending until the major income tax revenue rolls in next year. And while Genest says the loans "should not be a problem," the inability to repay RANs almost drove the state to insolvency four years ago and lenders are being much, much tougher these days on borrowers.
Thus, Tuesday's budget signing was merely another chapter in a never-ending saga.
Call The Bee's Dan Walters, (916) 321-1195. Back columns, www.sacbee.com/walters.
