February 29, 2008

The governor's fuzzy budget math

Amid the confusion over Schwarzenegger's position on tax increases, there's another problem: his fiscal logic on the issue is faulty.

In his appearance yesterday in Los Angeles, the governor said he was open to closing loopholes on the magnitude suggested by Liz Hill ($2.5 billion) -- so that the state could give more money to education.

But Schwarzenegger's budget as proposed does not erase the state's structural deficit. So if he raises taxes AND gives more money to education, or any other state program, he is still in the same boat. He brings in $2.5 billion more and spends $2.5 billion more. He's still got a deficit. Nothing has changed. It might even be worse because Prop. 98's minimum guarantee for school funding would then be ratcheted up even higher.

The tax increases, if there are any, have to largely replace the one-time gimmicks and deferrals in Schwarzenegger's proposal. That way, the state actually makes progress toward balancing the budget over the long term.

His comments suggest that the governor still does not understand -- or accept -- the long-term budget math. That's why he fumbled his big chance to solve the problem in 2003 and it's why he has kicked the can down the road every year since.

Every decision he makes should be accompanied by a three-year or five-year projection of its financial consequences under different economic scenarios. Otherwise he is flying blind. Remember the Prop. 98 deal that he made in 2003 and broke a year later? Sounds like he is heading down the same road again.

Posted by dweintraub on February 29, 2008 7:34 AM