At The Center of The Storm: Eerie Silence Greets Mounting Deficit
Early this year, it was obvious that the FY 2002 California State Budget was headed for the proverbial brick wall. Even as the Governor was projecting a $10-14 billion deficit, those within the office of the State Legislative Analyst were estimating a revenue shortfall of roughly $15 - 18 billion. The actual numbers, based on state tax collections to date, place the shortfall at just over $20 billion.
Unfortunately, this total does not include the cost of electricity purchase contracts signed by Governor Davis at the height of the power crisis last summer. These purchases could add an additional $6 - $9 billion to the total deficit. That is, unless some miracle occurs between now and the end of the fiscal year - and the municipal bond market quickly snaps up the newly issued California power bonds (this is the single largest municipal bond offering in the history of the United States, by the way.)
Governor Davis is now at the close of his first term, and is running for reelection. While most pundits feel that the election is largely his to lose - despite a dangerously low 45% approval rating, he can ill afford to be bogged down in a protracted budget fight this summer and fall.
Unfortunately, his only real options for dealing with the deficit are political poison: Either, A) Impose substantial tax increases, or B) Impose substantial cuts in programs important to core Democratic constituencies, or C) Forge some combination of "A" and "B." Any of these "solutions" will invite strong opposition from a block of legislators that could be enough to block passage of any budget until well into early Autumn.
The usual formula for budget delay includes solid opposition from Republican legislators. However, most expect that the Governor has sufficient support from key Republicans in each house to pass a budget -- if he has solid support from his own party. That is a BIG "if."
When the Governor releases his revised budget proposal on May 15, most expect that it will include steep cuts in many programs that provide health care and other services to the aged, blind and disabled, working poor and uninsured - otherwise known as the health care "safety net." These cuts are likely to be STRONGLY opposed by key members of the Democratic Caucus -- in particular, Senate President John Burton (D - San Francisco.)
Though the Senate President and the Governor are members of the same political party, there have been times that it seemed otherwise. Senator Burton has made no secret of his opposition to a number of the Governor's budget priorities and proposals in the past. He has also made it clear that he will oppose ANY cuts in safety net programs, and is urging that the budget be balanced largely through tax increases. The Governor has traditionally opposed ANY increase in taxes.
Clearly, the stage is set for a MAJOR political show-down, and the budget fight this year promises to be both protracted and ugly. At the moment, there is little being said by either "side" on the issue. Budget wonks within the Administration are busy slashing away at their already "slimmed down" budget proposal, and Legislative Budget Committee staff are busy looking at every possible option.
No clear picture is emerging yet. What is clear is that, at $20 billion-plus, this is the largest budget deficit in the state's history (indeed, it rivals the federal deficit in proportional terms,) and the pain inflicted from its resolution are likely to be just as "historic."
///pdg
6:13:39 PM 
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