SAN FRANCISCO — California is facing a $6.3 billion deficit for the current fiscal year, as well as a $14.4 billion gap in the next one, according to a report the state’s Legislative Analyst’s Office released yesterday.
“In short, it’s going to be another very difficult year for the Legislature in order to close what is another very large budget problem,” Mac Taylor, the legislative analyst, said in a statement introducing his office’s annual budget forecast report.
The LAO is charged with providing nonpartisan analysis of state budgets and policy.
The main reason for the growing gap in the budget year is that many of the savings adopted as part of the current budget have failed to materialize.
“Spending is drifting well above the levels assumed in the July budget package,” the report said. “Our forecast indicates that general fund spending obligations will be $4.9 billion higher than budgeted.”
For example, California will fail to achieve $1.4 billion in savings that had been assumed in the prison budget, and will spend $900 million above budget for Medi-Cal, the state’s insurance program for poor people.
The LAO also assumes that plans to achieve $1 billion by selling part of the book of business of the state-owned workers’ compensation insurer will fail to materialize.
The revenue side of the equation looks better, though still fairly grim.
“In fact, the economic and revenue situation is one of the few bright spots in our report,” Taylor said. The downward spiral of general fund revenue appears to have flattened out.
The LAO now projects that general fund revenue for the current fiscal year will be $1.5 billion below budget projections, though $1 billion of that is from the failure to sell part of the workers’ compensation insurance business.
But there is no doubt of the severe, lingering impacts of the recession. The LAO does not expect that general fund revenue will regain the $100 billion level — last seen in fiscal 2008 — until 2015.
As a result, budget decision makers need to focus on long-term changes, Taylor said. Under current law, the LAO projects the state general fund will have structural budget deficits in the $20 billion range — in excess of 20% of revenue — for each of the next five years, even though its projections assume no cost-of-living adjustments or salary increases for state employees during that time period.
That portends some difficult decisions in the years ahead about the role of state government.
“The scale of the deficits is so vast that we know of no way that the Legislature, [Gov. Arnold Schwarzenegger], and voters can avoid making additional, very difficult choices about state priorities,” the report said.
Taylor said lawmakers need to start addressing the problem early and focus on long-lasting solutions rather than one-timers.
He also said lawmakers should look at revenue options, such as “tax expenditures” — i.e. tax loopholes — fee increases, or an extension of temporary sales and income tax increases now scheduled to lapse after June 2010.
“The sliver of good news is that revenues have not continued to fall significantly below projections, so hopefully that is sign of stability,” Assembly Speaker Karen Bass, D-Los Angeles, said in a statement. “We look forward to receiving the governor’s new budget proposal in January and will immediately begin work on crafting budget solutions that will once again require both difficult spending reductions and additional revenues.”
Lawmakers have struggled long and hard over the last several budgets, which must be approved by two-thirds majorities. Majority Democrats have resisted spending cuts, while minority Republicans, who have power in the process because of the two-thirds rule, resisted tax increases.
GOP lawmakers in both houses deposed their leaders this year after they agreed to the temporary tax hikes.