With all eyes focused on Wall Street and Detroit, what’s happening in Sacramento?

Unable to get our lame duck legislature to agree on eliminating or reducing programs, or passage of new taxes, governor Schwarzenegger called an emergency meeting of the newly elected senate and assembly to confront the huge hole in our 2008-09 state budget. To expect immediate action by the 25 freshman members of the Assembly and 10 Senate members just arriving, or changing posts, in Sacramento is putting pressure on the newcomers to get up to speed on the fast track.

As a result of the monopoly money being thrown around in the District of Columbia, our local news coverage has focused on Wall Street, $700 billion TARP, Fannie Mae, Freddie Mac, AIG and now the “big three.”  They have overlooked CA and ignored the fact that unless someone can broker a deal in our state legislature we may be out of cash in the first quarter of 2009.

So, while we take a wait and see approach to the budget deficit solutions by our legislature, let me share some data which was given to me earlier this year by Lisa Kalustian, Chief Deputy Director, Office of the Governor on the proposed Jan 2008 “Budget Stabilization Act.”

Earlier this year Ms. Kalustian and I were guest speakers at a meeting of the Irvine Chamber where she discussed the challenges the governor faces in establishing budgets for our state.

The opening text of the three page Stabilizing California’s Budget report begins:

“California must reform how it budgets and spends taxpayer dollars. For a generation, the states budget has swung in and out of balance as a result of discrepancies between fluctuating tax revenues and auto-pilot spending. This system is not stable, responsible or in anyone’s best interest. Since taking office Governor Schwarzenegger has successfully spearheaded efforts to take budget-balancing ploys off the table and increase state savings. In December the governor announced that he will declare a fiscal emergency to address the current year budget shortfall.”

The article points out that “this situation is not unique. California’s budget problem is chronic, and driven by two factors:

1. The state historically spends all the money it takes in during years of high revenue growth, leading to unsustainable spending levels in the long run.

2.  California has not slowed spending growth fast enough. Automatic formulas will increase spending in FY 2007-08 by 7.3 percent, unless we take action now. Each month California spends $600 million more than the state takes in. Gilbert Note: Based on the continuing state recesssion that number has surely increased since January when this report was written.

The majority of spending in the budget is set on auto-pilot. Currently about 90 percent of the budget is tied up in contracts and statutory requirements.
This “feast-or-famine” cycle and automatic spending threatens the state’s long-term fiscal stability and leaves the most vulnerable residents victim to erratic, unpredictable assistance. Californians deserve better. Since the system itself is the problem, the system must be changed.”

Let me share a quote from former CA governor and later US president Ronald Reagan who said “no government ever voluntarily reduces itself in size. Government programs, once launched, never disappear. Actually a government bureau is the nearest thing to eternal life we’ve ever seen on this earth!”

Juice readers. The latest number we hear is our having a two year budget deficit of $28 billion dollars. How would you close the gap and get us back into the black?

About Larry Gilbert