Budget Follies

by David Dayen [courtesy of Calitics - Front Page]

"Budget Nun" Elizabeth Hill's pessimistic report about Governor Schwarzenegger's budget stressed the need for more revenue to close the $14 billion dollar gap and maintain a professional level of services.  But if the money boys on Wall Street are to be believed, even that $14 billion dollar shortfall represents a number borne of outsized optimism.

Deep spending cuts proposed by Gov. Arnold Schwarzenegger last week were followed yesterday by more bad news - a Wall Street firm placed the state's bond rating on "negative watch" amid fear that a $14.5 billion budget shortfall could get bigger.

The governor's budget is based on data from November and early December that assumes tax revenue will grow 2 percent next year. But in recent weeks, some economists have begun to warn that the economy may slide into a recession, which would shrink tax revenue and widen the budget gap.

Fitch Ratings placed California's bond rating of "A+," already one of the lowest ratings of any state, on "negative watch" because of lawmakers' inability to close a chronic budget gap and revenue forecasts in the governor's budget that may be outdated.

By the way, the bond rating becomes slightly more important when you finance the government by, you know, floating bonds.  Boy, do we ever need a governor with a strong fiscal background to ensure our bond rating doesn't go to crap!  Where d'you think we should get one of them?  Do we need another recall?

(over)

What choice did I have but to reach for the phone and dial three ringleaders from the 2003 recall of Davis? [...]

Ted Costa, the anti-tax crusader and the man who drafted the Davis recall petition, was on the horn right away.

"We've got to get it going again," I told him.

Costa seemed confused.

The recall, I said. The recall.

All the same conditions are there again, I told Costa, and there has to be another "throw the bum out" campaign.

"There probably should be," Costa agreed, warming to the idea.

(that article is hilarious.)

The point is that if you have to use creative accounting just to get to a $14 BILLION dollar loss, something is fundamentally wrong.  And cutting spending is not going to produce a satisfactory solution.  For one, it will result in forfeiting $1.5 billion dollars in federal matching funds, doubling the real-world impact on Californians.  For another, it will not make up for shrinking revenues that will necessitate more cuts, and on and on.  I know that the Governor, and really the whole Legislature too, has a speech impediment where the word tax comes out sounding like the word fee.  But fixing the revenue side is unavoidable, and Sacramento is not a movie set.  Welcome to reality, Governor.