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Legislative Analyst dude responds to U-T’s Chris Reed

June 11, 2009 - 11:28 pm

Warning: This blog post is long and dry. You should read it only if you’re a budget or public-policy wonk, or if you just like to torture yourself. The post is a byproduct of my preparation for Friday morning’s Editors Roundtable radio show on KPBS, which airs starting a little after 9 a.m.

If you read Chris Reed’s America’s Finest Blog on, you’re aware that he goes ape every time someone overstates—at least in his view—the state budget deficit. Here’s an excerpt of something he wrote recently:

I’ve been waiting for someone else in the media to point out how fraudulent the governor’s claim of a $24 billion deficit is. To recycle a past post, according to the gov’s own May revise, spending is $92.5 billion this fiscal year. Next fiscal year, he calls for spending of $84.1 billion next year to match available revenue. That sure looks like an $8.4 billion real-world reduction to me.

Since that was released last month, the LAO [Legislative Analyst’s Office] says revenue has further deteriorated, so perhaps the real world gap is now $11 billion. Where does the other $13 billion come from? From treating cuts in projected spending increases as real-world spending cuts….

Reed’s analysis doesn’t allow for any inflationary or population growth, but even if it did, it certainly wouldn’t account for anything close to the rounded-up $13-billion figure he uses. But my hunch, backed up by a conversation with UCSD poli-sci prof Thad Kousser, was that Reed was employing too simplistic an approach to assessing the oft-cited deficit. So I called Jason Dickerson, who studies the state general fund for the LAO and left him a message, noting that a local columnist (I didn’t name Reed) was regularly taking issue with the numbers. Dickerson, who seems to know all about Reed, responded to my call with this e-mail that was so thoughtfully crafted that I thought I owed it to him to share it:

I believe you may be talking about Chris Reed’s perspectives.

If I’m not mistaken, his perspective is that public and press discourse concerning, say, a “$500 million cut” in a given program often does not concern a $500 million reduction from the previous year’s spending for the program.

That is true. Often, “cuts” discussed in this way are actually reductions from the “workload budget,” which also sometimes may be called the “baseline budget” or even the “current law budget.”

Here’s a completely hypothetical example. Let’s say a benefit program had a $100 million budget in 08-09. The program might have a statutory cost of living adjustment (COLA) of inflation. If inflation is 3% and the program enrollment is forecast to grow 3%, the workload budget for 09-10 would be about $106 million. Some public budgeting types, as well as advocates, might view a $101 million budget for 09-10 in this program as a “cut.” As I understand Chris’s point of view, this is better explained as an increase as funding would grow from $100 million to $101 million year over year.

Ideally, discussion of the topic would point out both perspectives. It’s true in this example that overall spending would grow. On the other hand, in this example, there’s not enough funding to provide the (1) statutory COLA and (2) funding for the increased enrollment. That means one or both of those things (the COLA or enrollment eligibility) would have to be changed. Service, in other words, to program recipients has to be reduced…ergo, to some, this is viewed as a “cut.”

There are legitimate, varying perspectives on this issue. Workload budgeting, however, is a well-respected and legitimate public budgeting technique that provides transparency to the public and policy makers concerning the effect of budgeting decisions on service levels. As I mentioned, however, ideally, the full picture (both service levels and year over year spending growth) would be discussed and well understood.

That subject is largely separate, as I understand it, from the current discussion of a $24 billion budget shortfall.

In February the Legislature amended the 2008-09 state budget to address the fiscal emergency and passed the 2009-10 state budget.

According to data from our office and the Department of Finance there is now a $24 billion budget problem to resolve in those two budgets passed in February.

The $24 billion problem results from:

– about $15.5 billion less in state General Fund revenues in 08-09 and 09-10 as compared to the revenue estimates used by the Legislature and Governor in February. (This estimate results from reviews by our office’s and the administration’s economic and revenue experts.)
– $5.8 billion of higher-than-previously-assumed General Fund costs due to the voters’ rejection of Propositions 1C-1E.
– Over $3 billion of higher-than-previously assumed spending under current law and court decisions for programs, as compared to that assumed in February.

That $3 billion pot of money relates in part to the discussion earlier. A large part of it, for example, relates to programs–such as social service programs–with higher spending requirements under current law due in large part to the effects of the recession on enrollment in these programs. Another large chunk of this relates to higher state spending requirements under Proposition 98, as greater-than-expected drops in property tax assessments automatically increase state spending requirements for schools in some cases. (The state in other words has to “backfill” school districts for these losses under 98.)

Hope that helps.

Though he answered the question well, I went ahead and sent him the above excerpt from Reed, in case it prompted a follow-up. Here’s how he responded:

As I mention, I think Chris makes a lot of good points.  (Is it a cut or really just a cut in the rate of previously expected growth?) On the other hand, the other side of this issue also makes a lot of good points. (When you have to limit eligibility for a program or restrict its growth or change statutory cost-of-living adjustments, isn’t this a service cut?) As I mentioned, the best understanding of budget issues looks at both of these angles in understanding the big picture.

That being said, the $24 billion is an alarmingly real number. Here’s why. We already have a budget in place for 2009-10. If it is not changed, the appropriations included therein would, according to our projections, result in the state ending 2009-10 with $24 billion more in expenditures than it has revenues and reserves to pay for those expenditures.  That is the main reason why, if unaddressed, this deficit will lead to the state being unable to meet its daily obligations very shortly.

Now, if one were to examine each and every program in the budget and compare its budgeted spending to prior-year spending, you might find that many programs are, in fact, still growing-even under the Governor’s proposal with its sharp reductions or eliminations of certain programs. I think that’s the point – and a legitimate one – that Chris is trying to make. On the other hand, the Governor’s proposal also involves huge reductions and eliminations in a number of major state programs. Significant reductions from their “workload budgets” have already been included and are likely to be extended when the Legislature takes action to return the budget to balance.

Our state budget is very complex.  It can be difficult to analyze its trends on a macro-basis because of this complexity. Things that seem like revenues can be listed as expenditure changes. (The proposed lottery securitization would have been booked as an expenditure decrease.) The VLF [vehicle license fee] reduction of several years ago shows up as an increase in Proposition 98 spending.

But, as to the final question: do current increases exceed reasonable service-program growth? That depends on one’s perspective, I suppose. In our office, we look at each program separately in this regard and make recommendations to the Legislature.  Sometimes, the answer is yes. Sometimes, the answer is no.  But, no doubt, the Governor’s proposal includes major reductions to quite a few major state programs.

Hope that helps.  It sounds as if you and he might have a healthy debate.  That’s a good thing.  More understanding of the budget is always a good thing.


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