Here we go again. If it's May, California's state budget deficit has developed another beer gut bloated and seemingly unmanageable. It feels like the gap between inflow and outgo has existed forever, no matter who controls the Governor's Office. Over the past five years, the budget deficit projected in May for the coming year has averaged $18.2 billion. By most accounts, California's economy is creeping back, yet Gov. Jerry Brown says the budget deficit has now ballooned to a $15.7 billion chasm for the fiscal year that begins July 1. The state's chronic budget problems have been studied extensively, and, of course, there's no universal agreement on exactly what's wrong. But there are some pretty strong theories.
Here are five of them.
Theory 1: The structure
Until last year, the Legislature needed a two-thirds vote to pass a budget, one of only three states with such a requirement. Voters, probably lured by a provision that lawmakers would lose pay if a budget was not passed by June 15, approved Proposition 25 in 2010 to replace the 77-year-old two-thirds requirement with a majority vote.
Still, the Legislature is left with all the tax breaks (and their annual cost) approved to win the Republican budget votes needed back when a two-thirds vote was required. And the two-thirds vote requirement to pass taxes, contained in Proposition 13, remains on the books, meaning it's virtually impossible to undo the tax breaks or approve new taxes without a vote of the people. Democrats have been unwilling to erase the deficit entirely with budget cuts because they say services would be reduced too severely. Last year, Gov. Jerry Brown spent most of the year negotiating with Republicans to put a tax increase measure on the ballot. He failed. This year, he's bypassing the Legislature and going to the ballot via initiative.
What to do?
The two-thirds vote requirement for taxes is probably politically untouchable California voters have repeatedly expressed support for Proposition 13. Reform-minded group California Forward has an initiative proposal that would shift the budget to a two-year task which could improve planning mandate "performance-based budgeting" and require that a funding source is identified for any new program or tax cut expected to cost more than $25 million.
Theory 2: The voters
There's been plenty of criticism of governors' failure to lead and lawmakers' inability to buck their political benefactors in organized labor and the anti-tax lobby. But should voters bear some responsibility for approving ballot measures that restrict budget decision-making?
Proposition 13 (in 1978) limited local property taxes, shifting much of the school funding burden to the state, and imposed the two-thirds vote requirement for taxes. Proposition 98 (in 1988) guaranteed K-12 schools and community colleges 40 percent to 50 percent of general fund revenue.
Other measures restricted the Legislature's ability to take local governments' funds, directed new taxes to tobacco-related disease research, early-childhood development and mental health programs, while others sold bonds (saddling the general fund with the debt service) for high-speed rail and stem cell research. In November, voters are likely to face three tax increase measures, including Gov. Jerry Brown's plan to temporarily raise sales and income taxes.
What to do?
It's dicey. Surveys show Californians love their initiative system, and the ballot measure industry well-heeled interest groups and political consultancies has become more active and adept at feeding it. Senate President Pro Tem Darrell Steinberg, however, wants to push changes to allow the Legislature to amend or repeal a statutory initiative (not a constitutional amendment) 10 years after it has passed.
Theory 3: The tax system
It's true at the Capitol that Republicans generally want fewer taxes and Democrats want more. There is more agreement on one thing about California's tax system: It's heavily reliant on personal income tax, particularly capital gains from high earners. That makes revenue flowing to state coffers hard to predict and volatile as global market forces shift. Sales taxes, in comparison, have faded as a dominant source of state revenue. The dynamic causes huge swings in state revenue, creating a tempting bounty one year and a jaw-dropping gap in another.
The income tax increase Brown is seeking in November may provide nearly $8 billion more each year, but it exacerbates the volatility problem by raising rates on taxpayers earning more than $250,000 a year.
If Brown's taxes pass, personal income tax will become more than 60 percent of state revenue, about double what it was when he was governor before.
What to do?
This is probably the most studied part of the problem, but so far there is little political agreement. Ideas forwarded by tax commissions and government reform groups include:
Lower the sales tax but apply it to services, too.
Lower most income tax rates to reduce volatility.
Do the above and replace the corporate tax with a tax on net receipts.
Theory 4: (Not) saving for a rainy day
With the peaks and valleys in California's economy and the volatility of its tax system (see Theory 3) some would say politicians haven't done the best job of saving during good times.
In 2000, then-Gov. Gray Davis and the Legislature enjoyed a $12 billion surplus.
"I intend to resist the siren song of permanent spending whether it comes from the left or the right," Davis said at a May press conference. "And I will stand up to anyone who tries to convince the Legislature that they should spend most or all of this money in ongoing expenses."
But he and lawmakers spent the windfall by yielding to the teachers' lobby for more school funds after the unions threatened to place another education spending guarantee measure on the ballot.
To get the Republican votes needed to pass the budget, some of the windfall was spent on cutting taxes, including the vehicle license fee.
What to do?
Republicans and their corporate allies have put forward a variety of spending cap proposals that aim to limit spending and create "rainy-day funds" to force the state to save for the bad years. Advocates for state spending, unions mostly, dislike the concept and push hard to kill or water down specific proposals.
Theory 5: Gimmickry
As budget deficits have become more or less an annual occurrence, lawmakers, governors and their fiscal staffs have become expert in finding ways to temporarily balance budgets by borrowing and shifting money from other state funds, changing accounting practices or finding other sources of "one-time" money.
In 2009, for example, lawmakers changed a payday for state workers by one day from June 30, 2010 to July 1 allowing budget writers to count a one-time $1.2 billion cut in the fiscal year that ended June 30.
The budget proposal Gov. Jerry Brown submitted this week would use $1.4 billion in one-time money from now-defunct redevelopment agencies to support ongoing school expenses.
Last year, budget writers projected that the state would come up with $4 billion more than it ultimately did. Critics say reliance on such moves merely extends the deficit into the future instead of making permanent budget cuts to erase the ongoing deficit.
What to do?
Make hard choices. Faced with painful program cuts and tax increases or finding another way to put off solving the problem perhaps until the next upswing in the economy lawmakers typically have chosen the latter.