2008–11 California budget crisis

The U.S. state of California had, and still currently does have, a budget crisis in which it faced a shortfall of at least $11.2 billion,[1] projected to top $40 billion over the 2009–2010 fiscal years.[2]

Contents

2008

On September 23, 2008, about 3 months after its due date, Governor Arnold Schwarzenegger signed the 2008-2009 budget.[3][4] Worsening financial conditions that followed left the state with a large shortfall.

A two-thirds vote is required to pass a budget, and in both the original budget negotiations and in the attempt to revise the budget no political party by itself had enough votes to pass a budget. The majority Democrats fought to minimize cuts to programs, while most of the minority Republicans refused to accept any tax increase. The original budget was put together by Democrats and some Republicans using spending cuts, internal borrowing, and accounting maneuvers.[3][4]

In November 2008, Schwarzenegger proposed spending reductions including the following measures concerning state employees[5]:

In December 2008, Schwarzenegger ordered mandatory furloughs of two days per month for state employees, as well as "layoffs, reductions and other efficiencies" to achieve savings in the General Fund of up to 10%.[6][7]

2009

Labor organizations filed lawsuits and took other actions in an attempt to stop the furloughs of state workers.[8] On Jan. 29, 2009, a Superior Court Judge ruled that Schwarzenegger had emergency furlough power, and on February the 3rd District Court of Appeal in Sacramento said the appeal to the decision came too late and was incomplete, so judges were unable to determine if a halt to state furloughs is legally justified.[8] As part of the furlough, various state offices were closed on the 1st and 3rd Fridays of every month from February 1, 2009 through June 30, 2010, which was estimated to save the State $1.3 billion.[8]

By February 2009 California State Controller John Chiang delayed $3.5 billion in state payments (such as state tax refunds) for at least 30 days because the state was experiencing cash flow difficulties.[9]

The state legislature passed a budget in February 2009 that depended on the voters approving tax extensions and money redirection into the general fund, which in May the voters did not approve.[10] Governor Arnold Schwarzenegger then proposed $16 billion in cuts and also borrowing money from local governments. In the legislature, the Republicans agreed to lower the income of state employees, but the Democrats resisted these proposals and suggested increasing fees to be paid by smokers and oil wells. Neither party agreed to borrowing money from local governments.[10]

On April 1, 2009, the state sales and use tax was temporarily increased by one percentage point.[11]

The state had been selling bank-guaranteed short-term notes to get cash, but in June 2009 its credit rating was lowered.[10] When the state asked for a federal guarantee of the notes, the Obama administration said it had no legal authority to back state notes and that the state should solve its own problems.[10]

On July 1, 2009, Schwarzenegger ordered state workers to take a third furlough day each month.[12] On July 2, 2009, the state government began issuing IOUs to meet its short term financial obligations.[13] Five days later, Bank of America, Citigroup, Wells Fargo, and JP Morgan Chase announced that they would stop accepting IOUs by July 10. Fitch Ratings dropped California's bond rating from A-minus to BBB.[14]

On July 24, 2009, the state government passed a budget that included $15 billion in service cuts, including $8.1 billion in education cuts. Eliminated from the final plan included proposals to borrow money from city and county governments and to drill for oil off the coast of Santa Barbara.[15] Chiang announced in August 2009 that the IOU program would end the next month and that California would pay off 327,000 IOUs worth almost $2 billion.[16]

The budget crisis led to cutbacks and many layoffs at state universities in California. In order to curb the budget shortfalls, the California Board of Regents voted on a 32% raise in all tuition costs for state universities. This led to the 2009 California college tuition hike protests.[17]

Causes of budget deficit

A major source of the deficit has been the continuous growth in salaries and benefits of state employees during economic boom times, some of which were lobbied by trade unions. In 2009 more than 134,000 Bay Area public employees were reported by the Contra Costa Times to have earned annual base salaries in excess of $100,000[18]; however, many of these employees were local employees, not state employees. A database of public employee salaries was also made available by San Jose Mercury News[19]. As per the same source over 40,000 public employees in the Bay Area alone earned over $200,000 in 2009.

In 2008 the daily news also reported six figure salaries of many public officials in LA [20]. The Sacramento Bee maintains an updated database of state worker salaries.[21]

Required legislative supermajorities

News reports and commentators have cited the state's various legislative supermajority requirements as a contributing factor to the state budget crisis.[22][23] The state has a long history of supermajority requirements with a 1933 state ballot measure mandating a two-thirds supermajority to pass the state budget and California Proposition 13 (1978) mandating another two-thirds supermajority to pass tax increases.[24] The National Conference of State Legislatures (NCSL) notes that, as of 2008, only 9 states require a supermajority to pass the state budget and of those 9, only 3 (California, Arkansas, and Rhode Island) require a two-thirds supermajority instead of the three-fifths supermajority to pass the state budget.[25] The NCSL also notes that, as of 2008, 15 states require a supermajority to raise taxes and that California is among the 10 of those 15 that require more than a three-fifths supermajority (i.e., a 2/3 or 3/4 supermajority).[26]

Additionally, NCSL data shows that California is one of the only two states that requires a supermajority to pass both tax increases and the state budget.[25][26] California also has the stricter two-thirds supermajority requirement instead of the more common three-fifths supermajority requirement for both the budget and tax increases.

Reforms

Proponents of ending the state's supermajority requirements note that "Since 1980, the California State Legislature has met the June 15 constitutional deadline for sending a budget to the governor only five times (of thirty budget periods). Only ten times has the brokering been done by the July 1 start of the fiscal year."[27] They sponsored California Proposition 25 (2010), a ballot initiative that changes legislative vote requirements to pass a budget and tax increases from two-thirds to a simple majority (50% + 1). California Proposition 25 (2010) was approved in the state's November, 2010 general election ballot.

See also

References

  1. ^ "California 'faces budget crisis'". BBC News. 2008-12-02. http://news.bbc.co.uk/2/hi/americas/7760249.stm. Retrieved 2009-02-08. 
  2. ^ "California delaying tax refunds amid cash crisis". Reuters. 2009-01-16. http://www.reuters.com/article/domesticNews/idUSTRE50F6JH20090116. Retrieved 2009-02-08. 
  3. ^ a b "Schwarzenegger signs record-late state budget". Sacramento Bee. 2008-09-23. Archived from the original on 2009-07-27. http://www.sacbee.com/capitolandcalifornia/story/1259330.html. Retrieved 2009-02-17. 
  4. ^ a b "Bill List". Leginfo.ca.gov. http://www.leginfo.ca.gov/cgi-bin/postquery?bill_number=ab_88&sess=PREV&house=B. Retrieved 2009-07-25. 
  5. ^ "Governor's Open Letter to All State Employees Regarding Impact of Proposed Spending Cuts". California Department of Personnel Administration. 2008-11-06. http://www.dpa.ca.gov/news/news/2008/20081106-01.htm. Retrieved 2009-07-25. 
  6. ^ Schwarzenegger, Arnold (2008-12-19). "Executive Order S-16-08". California Office of the Governor. Archived from the original on 2009-07-27. http://www.gov.ca.gov/executive-order/11310/. Retrieved 2009-02-05. 
  7. ^ "Governor's Open Letter to All State Employees Regarding Furloughs and Layoffs". California Department of Personnel Administration. 2008-12-19. http://www.dpa.ca.gov/news/news/2008/20081219-01.htm. Retrieved 2009-07-25. 
  8. ^ a b c Ortiz, Jon (2009-02-06). "Appeals Court Denies Union Request to Halt Furloughs". The Sacramento Bee. http://www.sacbee.com/capitolandcalifornia/story/1604684.html. Retrieved 2009-08-25. 
  9. ^ McGreevy, Patrick; Jordan Rau (2009-02-01). "Delay of Tax Refunds and Payments Adds to Californians' Struggles". Los Angeles Times. http://articles.latimes.com/2009/feb/01/local/me-budget-suspend1. Retrieved 2009-08-25. 
  10. ^ a b c d Steinhauer, Jennifer (2009-06-22). "California’s Solution to $24 Billion Budget Gap Is Going to Bring Some Pain". The New York Times: p. A12. http://www.nytimes.com/2009/06/22/us/22calif.html?pagewanted=all. 
  11. ^ Sales and Use Tax Rate Increases on April 1, 2009
  12. ^ Sanders, Jim (2009-07-04). "Furlough Fridays Back - Now Three Days a Month". The Sacramento Bee. Archived from the original on 2009-09-05. http://www.sacbee.com/latest/story/1993230.html. Retrieved 2009-08-25. 
  13. ^ Steinhauer, Jennifer (2009-07-03). "Coffers Empty, California Pays With I.O.U.’s". The New York Times: p. A1. http://www.nytimes.com/2009/07/03/us/03calif.html?_r=1&ref=global-home&pagewanted=all. 
  14. ^ Knutson, Ryan (2009-07-07). "Big Banks Don't Want California's IOUs". The Wall Street Journal. Archived from the original on 2009-07-27. http://online.wsj.com/article/SB124692354575702881.html. Retrieved 2009-07-25. 
  15. ^ Steinhauer, Jennifer (2009-07-25). "California Budget Deal Closes $26 Billion Gap". The New York Times: p. A12. http://www.nytimes.com/2009/07/25/us/25calif.html?hp. 
  16. ^ McKinley, Jesse (2009-08-13). "Budget Deal Ending Need for I.O.U.’s in California". The New York Times. http://www.nytimes.com/2009/08/14/us/14calif.html. Retrieved 2009-08-25. 
  17. ^ "Tuition Hikes: Protests in California and Elsewhere". Time. 2009-11-21. http://www.time.com/time/nation/article/0,8599,1942041,00.html. Retrieved 27 November 2009. 
  18. ^ "Grown during better times, public paychecks stick out during lean years.". Contra Costa Times. 2009-09-12. http://www.contracostatimes.com/data/ci_13226767. Retrieved 12 September 2009. 
  19. ^ "Public Employee Salaries", San Jose Mercury.
  20. ^ "Thousands on L.A.'s payroll earning more than $100,000.". Los Angeles Times. 2008-07-30. http://www.dailynews.com/ci_9220386. Retrieved 30 July 2008. 
  21. ^ "Search for state worker salaries", Sacramento Bee.
  22. ^ Pew Center on the States (November 2009). "Methodology - Beyond California: States in Fiscal Peril". Pew Research Center. http://www.pewcenteronthestates.org/initiatives_detail.aspx?initiativeID=56004. Retrieved 2010-08-23. 
  23. ^ Jeffe, Sherry (2010-01-29). "Supermajority's not-so-golden rule". Politico (newspaper). http://www.politico.com/news/stories/0110/32174.html. Retrieved 2010-08-23. 
  24. ^ Mathews, Joe (2010-05-30). "California: ruined by the supermajority". The Los Angeles Times. http://www.latimes.com/news/opinion/commentary/la-oe-mathews-twothirds-20100530,0,105876.story. Retrieved 2010-08-23. 
  25. ^ a b Staff (October 2008). "Supermajority Vote Requirements to Pass the Budget: A Legisbrief". National Conference of State Legislatures. http://www.ncsl.org/default.aspx?tabid=12654. Retrieved 2010-08-23. 
  26. ^ a b Staff (2008). "Legislative Supermajority to Raise Taxes—2008". National Conference of State Legislatures. http://www.ncsl.org/default.aspx?tabid=17421. Retrieved 2010-08-23. 
  27. ^ Prah, Amela M. (2010-08-06). "California's Proposition 25 would have "majority rule" on budgets". Stateline. http://www.stateline.org/live/details/story?contentId=503753. Retrieved 2010-08-23. 

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