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Beware busting the budget

State finances are in better shape than expected. But fiscal discipline is still necessary.

January 13, 2013
  • Gov. Jerry Brown points to a chart showing the reduction of the budget deficit as he unveiled his proposed state budget at the Capitol in Sacramento, Calif.
Gov. Jerry Brown points to a chart showing the reduction of the budget deficit… (Rich Pedroncelli / Associated…)

Two months ago, the state's legislative analyst delivered a familiar warning: The budget that the Legislature had approved in June, which was supposed to include a $948-million surplus, was actually heading toward a $1-billion shortfall because of lower-than-expected revenue and higher costs. It was the same kind of message the Legislative Analyst's Office has delivered midway through every fiscal year since the housing market collapsed in 2007 — a sure sign that budgets held together by chewing gum and baling wire were coming apart.

Last week, Gov. Jerry Brown announced a surprising turnaround as he unveiled his $97.6-billion budget for fiscal 2013-14: Instead of starting the new fiscal year in the hole yet again, his office expected to have $785 million in reserve. You could almost hear the champagne corks popping around Sacramento. The government's unusually sound fiscal footing was a tribute to the $23 billion in cuts Brown and the Legislature enacted over the last two years, as well as voters' willingness to raise income, sales and corporate taxes temporarily in November. But the reserve could evaporate quickly. That's all the more reason for the Legislature to stay cautious about spending, regardless of the pressure to undo all the painful cuts made to state services.

Brown's office credits the state's fiscal rebound mainly to two factors: It collected more tax revenue last year than expected, and new data about sales and income taxes improved the outlook for revenue this year. Another contributor was the state's decision to pay back less of the money it borrowed from the government's special funds than it had planned for the coming year.

Slowing the reimbursement to the special funds just stretches out the problem. Meanwhile, the rosier revenue outlook could be undone by any number of factors outside the state's control. For example, gasoline excise tax collections could drop if the price per gallon shoots up again. And a congressional impasse over the federal debt ceiling could slam the financial markets, reducing the personal income tax revenue that's so important to the budget.

Brown stressed that his budget proposal maintained the fiscal discipline of his first two years, using the extra tax revenue provided by Propositions 30 and 39 mainly to boost spending on public schools and higher education. We'll have more to say about the budget's details and Brown's priorities later; suffice it to say for now that he struck the right tone. But some of the assumptions underlying the budget have already been contradicted; for example, it assumed the federal government would maintain the economy-stimulating payroll tax cut through 2013, but Congress let it expire.

It will be great news indeed if the state starts the new fiscal year in July in the black, not the red. But we have to get there first.

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