Although new projections have improved California’s revenue outlook for the next fiscal year, the state will still need to take a balanced approach to closing its budget shortfall to avoid excessive, additional cuts to core services like education and health care.
Earlier this year, Governor Brown proposed to close the state’s shortfall (then estimated at $26.6 billion) through a roughly 50-50 split between budget cuts and new revenue generated mostly by extending previously enacted tax increases.
California’s legislature enacted many of the cuts in the governor’s plan that include deep reductions in state services on top of the steep cuts that the state has already made in recent years. For example, the state will:
Even as the legislature has enacted cuts, Republican lawmakers have blocked the revenue portion of the governor’s proposal. As a result, California’s budget negotiations are at a dangerous standstill. Assembly Republicans recently put forth a plan based on their claim that stronger- than-expected revenues will allow the state to close its remaining shortfall (now estimated at $10 billion) without increasing taxes and without deep cuts to education. But as Jean Ross of the California Budget Project points out, their plan relies on gimmicks and wishful thinking.
The truth is that even with a somewhat improved fiscal outlook, and even after making deep reductions in state services, the state still needs to close a large budget gap. Failing to raise new revenues would force severe new cuts that would further damage the state’s already weakened schools, universities, and other public investments.
Just how deep would these further reductions need to be? In his revised budget, Governor Brown said that the required cuts could include:
Raising new revenue makes more sense than imposing additional cuts. As we’ve explained, raising revenue during recessions is generally a better choice to promote economic recovery than cutting state spending. Higher income people will pay a portion of the tax increase by reducing their savings. Consequently, the impact on consumer demand will be limited. Perhaps even more importantly, the new revenue will protect California’s future by limiting the damage done to its children and its basic public systems.
California got a nice surprise last week. But if legislators insist on doing even more damage to public investments, the state’s future will still be diminished.