An Alternative Computation of the State’s Budget Shortfall

This is excerpted from the May 24 edition of Cal-TaxReports, published by the California Taxpayers’ Association:

What Is the True Deficit?

The $19.1 billion deficit estimate is comprised of a current year shortfall of $7.7 billion, a budget year shortfall of $10.2 billion and a reserve of $1.2 billion.

However, the estimate is based on the usual budget math of determining what the government would like to spend and comparing that to available revenue. In this case, it is based on the assumption that the state budget should grow 14 percent, from $87.3 billion in 2009-10 to $99.5 billion in 2010-11.

Because the state is unable to sustain this enormous increase in spending, it is called a deficit.

Instead, what if the budget deficit was measured by what was actually spent in 2009-10 plus a reasonable (cost-of-living-allowance of) 2.2 percent for Consumer Price Index growth and 1 percent for population growth?

Using this method to compute the deficit, the difference between revenue and spending would be $7 billion, $83.1 billion in revenue and $90.1 billion in spending.

Because of an accounting gimmick moving a state payroll date to July 1 to put it in the next fiscal year, 2009-10 expenditures contain only 11 months of state payroll. To restore payroll to a 12-month number, $930 million should be added to the 2009-10 spending base.

Additionally, the raid on local agency property taxes for 2009-10 artificially reduced school spending by $1.7 billion for one year.

To adjust 2009-10 spending for these gimmicks, a figure of $89.9 billion could be used as a surrogate for 2009-10 spending. Adjusting for population and inflation would produce a $92.7 billion spending figure. The difference between this number and available revenue would produce a $9.6 billion deficit.

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(Editor’s Note: Truth is in the eye of the beholder. “Reform” for one political entity could mean “ruination” to another. First, since California is precluded by law from running a deficit, as Cal-Tax calls it,  the word shortfall will be substituted. Turning to Cal-tax’s estimate of California’s shortfall, it’s size would certainly shrink sharply using the methodology articulated in Paragraphs 4 and 5.

However, it would violate current law.

That’s what Cal-Tax means by “the usual budget math of determining what the government would like to spend.”

The Schwarzenegger administration is quick to note that’s its calculation is not of what it wants to spend but of what costs must be considered in developing a spending plan.

This is what’s known as a “workload” or “baseline” budget. What comprises a workload budget is laid out in detail in Government Code Section 13308.05.

A more reader-friendly definition of it is contained in the glossary on the website of Schwarzenegger’s Department of Finance:

“Workload Budget means the budget year cost of currently authorized services, adjusted for changes in enrollment, caseload, population, statutory cost-of-living adjustments, chaptered legislation, one-time expenditures, full-year costs of partial-year programs, costs incurred pursuant to constitutional requirements, federal mandates, court-ordered mandates, state employee merit salary adjustments, and state agency operating expense and equipment cost adjustments to reflect inflation.”

So while the task of budget writers might be greatly simplified by using Cal-Tax’s approach to defining the shortfall, that’s not an option without a statutory change. To which, hopefully, Cal-Tax would grumble: “There oughta be a law.”)

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