California State Budget Deal Has Holes, Analysts Say

By Wood, Daniel B | The Christian Science Monitor, October 4, 2010 | Go to article overview

California State Budget Deal Has Holes, Analysts Say


Wood, Daniel B, The Christian Science Monitor


The California state budget accord to be voted on Friday relies on $5 billion in federal money, $10 billion in Wall Street loans, and some pretty big assumptions, say some political observers.

California officials are high-fiving themselves over the announcement that they have reached a compromise to close the state's $19.1 billion budget deficit, ending a record-breaking impasse. The new "accord," reached three months after the start of the fiscal year, doesn't raise taxes as Democrats wished, but also doesn't dismantle the state's welfare system, as Republicans had proposed.

After a five-hour meeting Saturday between Gov. Arnold Schwarzenegger and Democratic and Republican heads of the state Senate and Assembly, Senate president pro tem Darrell Steinberg told the press, "We have a comprehensive agreement." More details, he said, would be released Thursday at a hearing and a vote could come as early as Friday.

There is only one problem, say several analysts: nothing is signed yet.

"Don't count your chickens, yet," says Robert Stern, president of the Center for Governmental Studies. "The budget still has a long way to go before it is finally enacted."

"A lot can still happen to derail this," adds Sherry Jeffe, a political scientist at The University of Southern California.

Details which have trickled into various press accounts include $7.5 billion in spending cuts and the suspension of a corporate tax break valued about $1.4 billion. Alicia Trost, a spokesperson for Mr. Steinberg, says that the so-called "gang of five" also agreed to erase another $1.4 billion by accepting an independent legislative analyst's estimate of incoming revenue, which was that much higher than Governor Schwarzenegger's. There is also the assumption of $5 billion in federal funds, and $10 billion in loans from Wall Street.

But one unknown is how legislators will respond to the sale of 11 state office buildings, which the state would rent for the long term. Two of the buildings are at San Francisco's Civic Center, which would bring in over $1 billion immediately, but would cost $30 million annually to rent.

More questions surround what kind of long-term credit the state can arrange, given its falling bond ratings.

The budget plan reportedly relies on bogus economic assumptions and unrealistic expectations about federal aid, says Jack Pitney, a political scientist at Claremont McKenna College in Claremont, Calif. "They debated, deliberated, and delayed - and then ended up faking it anyway," he says. "Never have so many Californians waited for so long for so little."

One of the biggest reasons why California set an all-time record for budget lateness this year, says Ms. …

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