We’re still waiting for the details, but the only real
question about this budget deal is exactly how short its shelf life will be.
Or to put it another way: Will
state leaders be negotiating another budget by the World Series (late October)
or by the Super Bowl (early February)?
No
one knows. But the economic collapse of California continues. If tax revenues
continue their decline (and the decline has outpaced nearly all estimates),
we’ll need another set of budget "solutions" and soon.
It’s
already plain that this budget doesn’t really balance. There’s no political
constituency for that kind of honesty. So we get billions in gimmicks – and
gimmicks make some sense in a recession; if you’re going to do deficit spending
in disguise, this is the time. But it would have made more economic sense to
limit some revenue cuts (particularly in programs that put cash in the hands of
citizens quickly, and thus stimulate the economy) and fill those budget holes
with sin taxes.
There’s also plenty of borrowing – most notably from local governments.
This is where the downside risk of this budget lies. Municipalities all over
the state are already short of cash, because of the economic collapse (and
because, in all too many cases, of over-spending and poor fiscal management).
The municipal bond markets are in such a bad way that some cities are finding
it difficult to secure what they need at reasonable rates. The state’s
borrowing, on top of this steep recession, could push more local governments
into bankruptcy. How many? Pray for quick economic rebound so we don’t find
out.