Originally published in Synapse on January 14, 2010.
California has another budget crisis. This should be no surprise to anyone at UCSF where we have seen firsthand the effects of reduced funding from the state precipitated by previous efforts to square the circle of the California budgeting process.
Our fees have gone up and staff has been furloughed; the problem is that it can only get worse. The current shortfall is about $20 billion, which, with a general fund budget of just under $90 billion, can only be reconciled through deep cuts and/or elimination of major programs.
And it is actually worse than it sounds. California has been overly optimistic regarding revenues over the past two years so that unless the economy improves, there is a significant chance of another year of missed revenue projections.
In addition, lawsuits are sure to follow once any proposed cuts have been instituted and the state has a mixed track record in these cases.
1. $1.1 billion dollars of Medi-Cal cuts were reversed by a federal court in July.
2. California prison medical services are controlled by a court-appointed receiver who plans to spend billions to upgrade services to a “constitutional standard”.
3. California has been ordered to release prisoners or upgrade facilities, costing billions, to reduce overcrowding.
4. 24 furlough lawsuits representing billions in potential liabilities are pending; the state has won some and lost some, but none have reached final resolution.
Also, certain measures have actually worsened the situation such as the stopping and starting of the new Bay Bridge construction last year or the furloughs at the Franchise Tax Board which have decreased revenues by over $600 million at a savings of less than a tenth of that amount.
And it is actually worse than it sounds.
Election year politics suggest that the budget negotiation this year will be even more stalemated than last. Democrats are unlikely to support painful cuts in programs representing core values for their constituency and Republicans will be even more insistent on no broad new taxes for the general fund.
The election year would complicate any effort by the federal government to assist California even if the state’s Congressional delegation was so inclined, but both Nancy Pelosi and Barbara Boxer forcefully rejected Governor Schwarzenegger’s plea last week for more federal tax dollars to be returned to California. (It did not help that Schwarzenegger has made some high profile comments criticizing healthcare reform.)
Certainly, Governor Schwarzenegger has made proposals to balance the budget as he is required to by law. Part of the package of particular interest to the UC system is a proposal he made to amend the state constitution to guarantee 10% of the general fund go to higher education.
Unfortunately these proposed solutions are a mixture of unrealistic assumptions — some illegal, others wishful thinking — draconian cuts, and modest improvements. Nothing appears to be on the horizon that will cure this disease.
Default is a very real possibility even though no one except those but the shrillest or most out there are currently talking about it. No state after the Civil War has ever defaulted on general obligation bonds, but California is currently closer than ever.
CMA Datavision has put together a top 10 list of risky government debt in a Sovereign Risk Monitor. California is the only state on the list at number nine sandwiched between Greece and Lithuania with a 5 year risk of default estimated at 19%.
It would seem that the federal government would have to step in if default was eminent, but it would be unclear on what terms and under what Constitutional (both state and federal) authority this could happen.
It looks like Schwarzenegger is once again the star of an action/adventure (or disaster) movie except this is for real.
