Panelists Bemoan California's Broken Budget Process

SAN FRANCISCO — California's road to reform is bumpy and may lead to a dead end.

The panel kicking off Thursday's events at The Bond Buyer's California Public Finance Conference focused on reforming the state's government, but neither the panelists nor those who came to hear them thought that road would be an easy one.

More than 74% of participants in an instant, multiple-choice poll indicated that they expect next year's California budget deficit to exceed $5 billion.

"I bring sad news," said panelist Fred Silva. "The 2010-11 budget looks very much like the 2009-10 budget, which looked very much like the 2008-9 budget."

Nothing will be solved by the budget proposal lawmakers took up Thursday, according to Silva, a state budget expert who works for California Forward, a group that is trying to reform the state's governance.

Silva said lawmakers close the books every year by deferring expenses into the following fiscal year.

"The good news is, they're considering today a spending plan," he said. "The bad news is they're sending those obligations to the next group of lawmakers that will arrive in November."

California Forward member Sunne Wright McPeak, a former Contra Costa County supervisor and former member of Gov. Arnold Schwarzenegger's cabinet, said: "California is not only broke, it's broken."

The best thing about the three-month-overdue budget is that Schwarzenegger held the line and demanded pension concessions from state employees, according to Orange County Supervisor John Moorlach.

Such pension reforms have been the centerpiece of his tenure on the county board, Moorlach said, and they have to be at the center of any plan to turn around state and local governments.

"If we don't declaw the unions and we don't start doing something about pension reform, then everything else is just moving the deck furniture," Moorlach said. "We've got too many cities — too many counties — literally one paycheck away from Chapter 9 bankruptcy."

Panelist Howard Cure, director of municipal research at Evercore Wealth Management, said he is not impressed by the kind of budgeting that comes out of the capital in Sacramento.

"This is a state that gives me a lot of agita," he said.

Cure's concerns are more on the level of predicting California general obligation bond spreads, rather than worrying about default.

"Putting everything else aside, it is an investment opportunity because I do not think the state of California is going to default on its debt," he said.

Neither panelists nor audience members expect much out of some of the reforms that have either been enacted or are on the ballot. California has enacted redistricting reform for the Legislature and implemented an open primary system. A modification to term-limits laws has qualified for a future election.

More than 60% of participants in the instant poll, sponsored by Standard & Poor's and The Bond Buyer, said the changes wouldn't improve the budget process. The poll drew 280 participants.

Panelists put the most hope in the term-limits measure, which would allow lawmakers to serve 12 years in one chamber, rather than the current eight.

Moorlach favored term limits — until they applied to him. He is serving a second and final term as county supervisor.

"Now that I'm in an elected office that has term limits and have realized how much time it takes to get things done — to really reform things — [I realize that] by the time you really get the ball moving you're already out of the office," he said. "What really happens in Sacramento and in places that have term limits is that staff runs the place."

The poll also considered whether passage of the Prop. 19 ballot question, that would allow state and local government in California to regulate marijuana use and tax it. Of the 202 responses to that question, 59.9% said that if Prop. 19 passes the market would accept bonds backed by marijuana taxes. The other 40.1% said it would not.

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