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Real budget crisis is the $8 billion annual income-outgo gap That was how much, more or less, Gov. Gray Davis and the Legislature foolishly spent out of a one-time windfall of income taxes three years ago. And that's roughly how much out of balance the state budget has been every year since. Davis and legislators ignored or papered over this "structural deficit" for two years, and the Democratic governor wants to borrow nearly $11 billion, on top of the $6 billion in outstanding budget-related debt, to cover those two years of deficits. Then he wants to impose $8 billion in new taxes -- there's that number again -- to balance the 2003-04 budget. But even if Davis' much-revised budget is enacted -- and that's very uncertain, given seemingly implacable Republican opposition to the new taxes -- the state would, by his own numbers, have another $8 billion shortfall in 2004-05, because so many of the budgetary gimmicks adopted in the last two years would expire and the state would have to begin repaying its many loans. The mountain of budget debt -- not to be confused with bonds issued for schools and other public works -- either already accumulated or projected to be incurred is propelling California into perilous waters, especially when more $8 billion-per-year deficits loom in the future. Elizabeth Hill, the Legislature's chief budget adviser, referred to Davis' revised budget Monday as "precariously balanced," but just for one year, and told lawmakers that the state must do something about deficits that loom year after year, even if the state's economy picks up. "We can't grow our way out of this on the natural," Hill said. "We're very concerned about the structural imbalance going forward." State Treasurer Phil Angelides, a Democrat who wants to run for governor himself in 2006, echoed Hill's concerns in an interview with The Bee's Capitol Bureau. Davis' budget "doesn't achieve structural balance," Angelides said, adding that the current and projected budget debt is "too much in the context of our state budget" and puts the state in "dicey territory." Whether one raises taxes further, as Angelides advocates, or cuts spending, as Republicans are demanding, the most important aspect of the debate over the state budget is dealing with the $8 billion structural deficit -- the ongoing annual gap between what the state can expect in revenues and what current law requires it to spend. If that gap is not closed, the state's fiscal future is dismal, and the Davis budget doesn't even try to do it. He is proposing, in essence, that the Legislature borrow more money, enact a budget that's more or less balanced for 2003-04 and worry about the structural deficit sometime in the future. But will Wall Street lenders go along? While the state may, if Davis has his way, be peddling $11 billion in five-year budget debt bonds in the months ahead, the state also is asking lenders to pony up another $11 billion right now in short-term "revenue anticipation" loans just to keep Sacramento's check-writing machines operating. But their willingness to lend that money, or at least the credit-worthiness rating they impose on the state's paper, will be dependent on whether they believe the governor's overall budget plan is workable.
Administration agents have been lobbying Republican lawmakers for what one termed "muted opposition" to the Davis plan, saying that strident opposition would undercut its viability as a "template" and thus damage the state's credit rating. But the Republican opposition to the $8 billion in taxes has been
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