SAN FRANCISCO — California’s gaping budget gap is likely to lead to a legislative impasse that could easily shut the state government down next summer, Treasurer Bill Lockyer said this week.
“We are again getting close to the point where the state won’t be able to pay its bills,” Lockyer said Monday during a keynote address at symposium put on by the University of California at Berkeley’s Fisher Center for Real Estate and Urban Economics.
Lawmakers struggled to put together a budget last summer in the face of a large budget deficit that emerged after the recession pummeled tax revenues.
Ultimately, the state issued about $2 billion of IOUs between July and September to creditors without legal or constitutional protection, in order to conserve cash for creditors who had such protections, including bondholders.
The IOUs were ultimately redeemed after lawmakers passed budget revisions to close the $24 billion gap.
Some of those budget solutions have failed to materialize, as the state’s independent legislative analyst noted in a report last week, predicting that the current-year deficit is back at $6 billion.
Municipal Market Advisors, in its weekly outlook report Monday, noted that prices on California’s revenue anticipation notes “began to decline swiftly” in the last two weeks with the backdrop of bad budget news.
“The impact on muni valuations is obviously negative, as [California] is unlikely to find a clean and easy solution to its problems,” the report said. “Rather, the state will face renewed downgrade pressure and a host of bad press that will only amplify the growing host of kook letters circulating about the imminent 'collapse’ of the municipal market.”
Lockyer, speaking yesterday, said that if lawmakers don’t quickly close the new budget gap, the state will have even fewer liquidity tools at its disposal next year than it did this year.
“I don’t think anyone wants to do IOUs again,” he said. “So the alternative now if there’s a deadlock is simply, frankly, to shut down the state government.”
Lockyer, a Democrat, said California hasn’t run an honestly balanced budget since 1997.
“I always like to say, gee, it was the last year for which I was president of the state Senate. However, in truth it was [former] Gov. Pete Wilson and his discipline,” Lockyer said.
The state has been hamstrung by the rule that requires a two-thirds vote of each chamber of the Legislature to adopt a budget.
“It’s very, very difficult to find consensus on fundamental things like what should be the size and purpose of government, an ongoing fight about which there is not two-thirds agreement,” Lockyer said. “As a consequence, we have this shutdown every summer.”
The legislative analyst forecast that, if no changes are made to current law or spending programs, California would face $20 billion annual deficits through 2015 on general fund revenue currently at about $84 billion.
That means substantial cuts, Lockyer note. “I don’t know anyone that thinks that can’t be done without very substantial impacts on essential public services,” he said. “There needs to be, in my view, some balanced package of cuts and revenues.”
His idea is to cut to the chase and ask voters. Lawmakers, the treasurer said, should put together a revenue package for the statewide ballot in June and tell voters what will be cut if it’s defeated.
“Don’t overcomplicate it,” Lockyer said. “Here’s the tax — if you want lower services, vote no.”
The treasurer rained on the parade of property-tax reform advocates on the left, who favor modifying the state’s Proposition 13 tax limits to increase taxes on commercial property, either through more frequent reassessments or higher rates.
“It’s just an embedded part of our political culture,” Lockyer said of Prop. 13. Even if it were politically feasible to change the limits, it would probably be a bad idea, he said.
Relatively low property taxes counterbalance the state’s relatively high sales and income taxes, Lockyer said.
“One of the things we have to be sensitive about is to not have an aggregate tax burden that so disadvantages California individual and business taxpayers that it is another economic disincentive to stay or grow in the state of California,” he said.