California fixes its budget – for now

posted at 10:04 am on July 21, 2009 by Ed Morrissey
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The state of California has apparently fixed its budget issues, according to a report from the San Francisco Chronicle, and they even managed to listen to the voters this time. The plug for the $26 billion hole involves a series of major budget cuts as well as every accounting gimmick imaginable, but at least thus far no tax increases. The legislature agreed to a desperation move as well — drilling for oil off the coast of Santa Barbara:

Gov. Arnold Schwarzenegger and legislative leaders reached a tentative budget compromise Monday to plug a $26.3 billion deficit by making hefty cuts in education, health and welfare services, and taking billions of dollars from county governments.

The plan also includes allowing an offshore oil drilling project near Santa Barbara, keeping most state parks open and eliminating the Integrated Waste Management Board, which is led by political appointees, many of them former lawmakers, who earn six-figure salaries. Prison spending would be cut, but inmates would not be released early. …

The Legislature is scheduled to vote on the plan Thursday. Approval would allow the state to begin recovering from this latest fiscal disaster, in which it issued IOUs while its credit rating plummeted toward junk-bond status.

“We accomplished a lot in this budget agreement,” said Schwarzenegger, adding that negotiations at times were “like a suspense movie.”

The tentative deal contains about $15 billion in cuts, roughly $4 billion borrowed from local governments and the rest from various accounting gimmicks that include early collection of taxes, increasing withholdings and shifting $1 billion worth of state workers’ pay from the last day of this fiscal year to the next.

So much for the scare tactics of last May. Schwarzenegger and Democrats in Sacramento tried to buffalo Californians into voting for massive tax increases by insisting that failure of the referendums would result in releasing inmates, closing schools, and firing first responders. The electorate responded by voting against the tax hikes by 2-1 margins — and by limiting legislative pay, a proposition that passed with over 70% approval.

It looks as though the legislature and the governor finally got the message, although some of the gimmicks amount to kicking the can down the road. The state will borrow billions from the counties, money that they will have to repay with interest at some point. The cuts to education are also going to be reversed; the agreement sets up a kind of restitution that will bust the budget in 2012.

The most interesting part of the agreement was the reopening of Santa Barbara’s coastline to off-shore drilling. That will raise $100 million a year, which the Drill Here – Drill Now contingent has insisted would help the state balance its budget while lowering the cost of energy and providing jobs. The state has finally agreed, albeit very reluctantly. Ironically, it was a 1969 oil spill off of Santa Barbara that put the effort to ban off-shore drilling in the US into high gear. If California sees a big revenue spike from the new leases, perhaps they will open the entire coast and revive the oil-production industry in the state, and keep that cycle of jobs and energy going.

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