Some Reasons for California’s Continuing Revenue Shortfalls

California’s now $26.6 billion budget shortfall is the result of the state spending one-time money on ongoing commitments is a statement commonly heard as lawmakers debate spending plans.

Like so many clichés, it happens to be right.

While not the sole cause of the state’s current fiscal woes – the recession and the 2 million unemployed Californians left in its wake has played a major role – actions taken 10 years ago contributed to the chronic imbalance between spending and revenues.

The budgets for the fiscal years of 1999, 2000 and 2001 were able to be generous both to taxpayers and recipients and providers of government services because of a large spike in revenue from investors cashing out their capital gains they received from Dot-Com companies.

Although then Gov. Gray Davis tried to squirrel away some of what would turn out to be one-time money in a multi-year traffic congestion relief program, the state’s ongoing spending was increased and incoming revenues reduced.

Per pupil spending in public schools was increased 11 percent.

Some $1.5 billion in tax cuts were enacted, including lowering vehicle license fees by 10 percent. A teachers’ tax credit was enacted. A childcare tax credit. Property tax assistance for seniors was boosted.

The research and development tax credit write-off rose from 11 percent to 12 percent. Self-employed workers got a bigger deduction for health-related costs.

Doctors and hospitals providing services under Medi-Cal, the state’s health care program for the poor, got their reimbursement rates increased.

Foster care, adult protective services and nursing homes all saw bigger budgets.

And the aged, blind and disabled, set to receive a 4.9 percent aid reduction in 2002, saw the future cut repealed.

A generous spending plan – then the Dot-Com bubble burst.

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