SAN FRANCISCO - The fat has already been trimmed, low-hanging fruit has been picked, and budget gimmicks have gotten a workout.
Whatever the clichés of the first round of budget cuts in this year's sharp economic downturn, California budget makers now face an unpleasant truth: The state's economy has slowed so drastically that they must make significant cuts to services that constituents really care about - or raise taxes.
San Diego Mayor Jerry Sanders proposed $41 million of budget cuts this week. Mayors in Los Angeles and San Francisco are warning of hundreds of millions in budget cuts. Gov. Arnold Schwarzenegger called a special session of the Legislature yesterday to deal with a budget gap that has ballooned since the spending plan was adopted in September.
"Our economic and revenue situation has worsened dramatically since the budget was put together," Mac Taylor, California's legislative analyst, said during a discussion of the state budget at the Milken Institute last week.
The California economy has slowed drastically, forcing policymakers to make second or third rounds of cuts in many jurisdictions. The unemployment rate has surged to 7.7% from 5.5% over the past year. The Golden State has been hard hit by the downturn in the housing crisis, particularly in formerly fast-growing regions of Southern California and the Central Valley.
In San Diego, Sanders on Wednesday proposed 217 job cuts, about half of them empty positions. The proposed job cuts include four of chief operating officer Jay Goldstone's top deputies and three members of the mayor's staff.
But administrative cuts won't be enough to fill the gap in the $1.2 billion general fund. Sanders also called for what are sure to be controversial cuts: closing seven libraries and nine recreation centers, elimination of fire and police academy training classes for new recruits, and cutting civilian staff from both the police and fire departments.
"There's simply no denying that these budget cuts are going to be painful for all of us," the mayor said. "But we're going to do it without smoke and mirrors."
Officials expect revenue to come in $34.8 million below budgeted levels because of declines in sales, property, property transfer, and transient occupancy taxes, as well as declines in interest income and franchise fees. The housing-related taxes have taken the biggest hit, with a property transfer taxes coming in 28% below the already reduced budget. The value of residential construction permits has declined 18% from last year. Hotel taxes are off 9% from the budget levels.
Sanders' cuts now go to the City Council, where Democrats are likely to fight some of the Republican mayor's planned service cuts. That's a pattern that is playing out across the nation, with governors, mayors, city managers, and county executives proposing new cuts to budgets that were already reduced during spring budget battles.
In San Francisco, the far-left "progressives" who control the Board of Supervisors are preparing to fight any cuts Mayor Gavin Newsom proposes in social programs and public health to close an estimated $125 million gap in the city's general fund. Newsom has given department heads until today to propose cuts to their budgets that he can take to the board this month.
In the Legislature, Democrats continue to call for tax increases to be a major part of any budget-balancing efforts, while Republicans continue to prefer cuts to social services. The state closed a projected $15 billion deficit in the 2008-2009 general fund with a grab bag of gimmicks in September after failing to agree to significant cuts or new taxes. The gimmicks included $8 billion in one-time revenues and accelerating tax collections. The state government also grabbed $350 million of taxes that were earmarked for local redevelopment agencies.
Taylor, the new head of the Legislative Analyst's Office, said California's budget is now expected to end the current fiscal year with a deficit of at least $3 billion and faces the possibility of a $13 billion budget gap next year. The situation continues to deteriorate.
"These numbers will most likely get even worse," he concluded.
State Treasurer Bill Lockyer is calling on lawmakers to give up on gimmicks and start making real cuts or raising revenue.
"We have some short-term problems that I think are going to result in some very deep and painful cuts that have to be made in current accounts," he said at the Milken Institute. "I'm sure there will be many arguments."
Lockyer's main argument is that California shouldn't borrow and incur long-term obligations to fill a short-term budget gap. He called Schwarzenegger's plan to borrow against state lottery revenues "foolish."
Republicans continue to argue that tax increases will hurt the economy at precisely the wrong time. Democrats say cuts to crucial social programs, like the Medi-Cal health program for the poor, can't be imposed in such tough times.
"We believe that Californians are taxed enough," said Sen. Dave Cogdill, R-Modesto, the GOP leader in the upper chamber. He said the state has to take "a much harder look" at spending.
While the exact degree of the problem varies across jurisdictions, the debates are strikingly similar. But in the end, the picture has become so dire that lawmakers at every level are going to have to swallow some budget-balancing measures they don't like.
"The fundamental problem is not related to the revenue or the taxes or to the differences between the parties," said Leon Panetta, director of the Panetta Institute at California State University, Monterey Bay, and director of the Office of Management and Budget in Bill Clinton's White House. "The real fundamental problem is our ability to govern and whether or not the people who are elected are going to be willing to make the tough decisions."
He said dealing with California's "immense" budget crisis is going to require Republicans and Democrats to open negotiations on both sides of the budget ledger. Thus far, Republicans have resisted all tax increases, and Democrats have resisted deep spending cuts.
"We're not talking about something that is impossible," Panetta said. "The reality is governing on a budget issue takes some very tough decisions on spending and on taxes."
