Los Angeles Times
November 23, 2008

No, really, how bad could it be? How seriously should we take the state's latest budget crisis if a clutch of lawmakers, including the chairwoman of the Senate Budget Committee, is spending the emergency session in India? What kind of buy-in from Californians should be expected when several others are in Hawaii and China, and even Assembly Speaker Karen Bass (D-Los Angeles) just phoned in to one of the "big five" leadership negotiations because she found something more pressing to attend to in Atlanta?

California lurches from budget catastrophe to fiscal disaster so regularly that a kind of crisis fatigue has set in, in which talk of collapse and insolvency are taken in stride. Numbed to repeated warnings that the state cannot carry on this way, residents can hardly be expected to grasp that there is anything new or different about the situation now, especially when political leaders show little willingness to move from the same ideological corners they've been stuck in since the last deadlock.

But far from India, Georgia and wherever else elected officials are spending the waning days of the special session, back in Sacramento, in the governor's Department of Finance, at the Legislative Analyst's Office, among those who watch unemployment figures and cash flow, there is a palpable anxiety. In some offices, it borders on panic. Past meltdowns have been disguised by a healthy economy. This time it is different.

The Legislature adopted a budget for the current fiscal year in September, nearly three months late. The spending plan rested on accounting gimmicks and a refusal to acknowledge that the home mortgage crisis could in any way affect the amount of tax revenue the state would collect in the first fiscal quarter and, more important, after the holiday shopping season. But it was no mystery. Lehman Bros. had already declared bankruptcy, American International Group was teetering and the $700-billion federal banking bailout was just around the corner.

Almost immediately, new revenue figures showed the state budget to be precariously out of balance. California now must come up with $11.3 billion in tax revenue, cuts or a combination; together with projections for the coming fiscal year and the 2009-10 budget already being crafted in the governor's office, California is $28 billion in the red and will fall at least $20 billion short each year through 2014. That gap is larger than the annual budgets of 30 other states.

The Legislature's two-year session effectively ended when this year's faulty budget was adopted; new members have been elected and will take office next month. Gov. Arnold Schwarzenegger decided, wisely, that there was no time to wait for a whole new class of Capitol freshmen, so he called back the lame-duck Legislature to fix its spending plan; lawmakers are, supposedly, working on it now. Schwarzenegger is meeting every day with Bass (when she is in town), Assembly Republican Leader Michael Villines of Clovis, Senate President Pro Tem Don Perata (D-Oakland) and Perata's successor, Darrell Steinberg (D-Sacramento).

Perata and other outgoing lawmakers remain in office until Nov. 30 but actually must finish their work by Tuesday. Why? Because, in this state known for cutting-edge technology and in this crisis when every minute counts, officials need time to adjust the computers to be ready for the incoming class. Yet despite the time crunch, public statements from lawmakers come in various shades of intransigence and wishful thinking. They are distractions.

* The first dead end: Kick the question to the public. Let voters take responsibility for tax increases, as Perata suggested doing earlier this month, or for adopting a strict spending cap, as some in the Capitol offered last week in exchange for an increase in the vehicle license fee.

There is nothing voters can adopt that will raise $11.3 billion in the current fiscal year. There is simply no time. Cash reserves are projected to dip into negative territory in March, so state programs would be shuttered and financial obligations would be in jeopardy long before any solution comes to the ballot. Even when the credit market is healthy, no lender fronts money to a state on the hope that voters might, at a later date, tax themselves or adopt spending restrictions.

* The second dead end: an Obama bailout. The argument goes that if the federal government props up AIG, it surely would do the same for California, especially after the new administration takes office. With tax increases and a bailout, Democrats say, there will be no need for cuts.

That sort of faith-based budgeting ignores the similarities between California -- with its poor planning, its irresponsible spending and its declining revenues -- and, say, General Motors. U.S. senators who rebuffed the Big Three automakers last week in their bid for bailouts would be unlikely to offer the state anything without first demanding the same kinds of belt-tightening measures that Democrats in Sacramento are avoiding today. Washington may well play a role in the state's fiscal future, but there will be no bailout without strings, and no help before Thanksgiving.

* The third dead end: no new taxes. California cannot cut its way to solvency. Cuts to Medi-Cal reimbursements, for example, drive doctors from the state and increase the burden on public hospitals -- raising costs for taxpayers. But GOP lawmakers are continually driven rightward by a select group of bloggers ready to pounce at the slightest hint of softening on taxes, just as Democrats are repeatedly warned by labor not to give an inch on cuts.

California must brace for deep cuts, but cuts alone cannot do the job. Lawmakers currently are negotiating over a dollar of new taxes for every dollar of cuts, and although it's hardly a thoughtful approach to budgeting, it avoids magical, and pointless, thinking. Unfortunately, lawmakers seem increasingly likely to talk themselves into a fourth dead end: giving up, going home and leaving the task to the incoming Legislature. Every day of delay makes the necessary taxes higher and necessary cuts deeper.