The Fantasy Budget Game

While the "Hopeful Headline Writers Guild" seems to dominate the news media - my latest favorite is Hiring robust across nation; California could follow (you gotta love that "could") - it's time again to play the "Fantasy Budget Game" in California.

The players are the Gubernator Arnold Schwarzenegger and the other 120 goobers in the Legislature. Arnold is in his last few months as Governor. A number of legislators are in their last year in office. It's an election year.

On Friday, the Gubernator will release an updated, and presumably thinner, version of his January envisioned 2010-11 plan which included revised revenue estimates for the last six months of 2009-10. Since January every month politicians and all the news media have been comparing the State's monthly income numbers to those revised estimates. This avoids facing the farce that was the result of last year's Fantasy Budget Game.

This time last year the same goobers were working on a budget for 2009-10 and they did finally adopt Fantasy Budget. Last July I wrote:

Choose the size of your problem - $8 billion or $12 billion. Let's just agree that it's likely that the revenues shown in the adopted budget will be about $10 billion short by June.

Now, at the end of 2009-10, we learn that the income tax revenue expected in that budget was a mere 12% too high. Fortunately, Sales Tax revenue will have been only 2% too high partly because of the federal government's Cash for Clunkers program. And it appears that the manipulations-by-threat regarding the Corporation Tax will have resulted in the actual revenue being around 1% higher than the budget - a this-year-only result. So last year the goobers missed the big three revenue sources by only around $6.4 billion or by 7.5%. Add in the too-high budgets for other revenue, it appears that the General Fund revenue figures will have been $8 billion too high.

So, what do we know going into the new season of the Fantasy Budget Game?

The available numbers tell us a great deal about California's economy. The Sales Tax revenues adjusted for the 20% rate increase in April 2009 tell us that taxable sales are down about 20% from 2007. Income tax collections are down about 18%. And, adjusting for the manipulation, it appears that Corporation taxes are down around 17%.

Reportedly over the past 28 months California has lost around 1.2 million jobs or 7% of the jobs it had in November 2007 while the labor force has grown by about 2%. These number come from the federal survey data. But the State's reported number of "Unemployment Insurance covered jobs" support the 1.2 million jobs lost number.

This is the year that the State needs to determine how it can educate its children by spending 20% less per student than it did five years ago without losing federal funds. Or it needs to determine how to raise taxes to cover the reduced tax revenue.

This is the year that the State needs to determine how it can provide services to the disabled, the poor and the elderly spending 20% less per beneficiary on average than it did five years ago without losing federal funds. Or it needs to determine how to raise taxes to cover the reduced tax revenue.

Instead, for the next few months, the press will dutifully report the activities of the goobers as they play the Fantasy Budget Game. This will carry us through to the November election when the voters will elect those who will discover in January how bad things really are. By May 2011 everyone will understand that all the hard decisions delayed for the previous three years will have to be made. Right now they think that many hard decisions have already been made.

The Great California Slump is economic reality. And California is caught in a trap of its own making. By pretending that it is better to have a fully handicapped Legislature unable to respond to financial collapse, the voters created a Fantasy State Government. By adopting Proposition 13 and term limits, the voters confirmed the governmental style they preferred - avoid making hard choices.

We are determined to not be limited to selecting between candidates who point out we cannot afford the "free lunch" mentality. We don't want to choose between candidates who (a) promise to reduce services by leaving many children without medical care and education or (b) promise to increase taxes thereby reducing the amount of cash individuals have to buy necessities ranging from iPods to houses twice as large as our grandparents were comfortable in.

This California cannot continue beyond 2012 without entrenching into its soul many of the problems of a third world nation where the population is divided between:

• 50% who are always below, or are barely above, minimum poverty level, unable to educate and elevate their children, but hoping the latest lottery ticket will carry them to financial heights, and many of whom live in neighborhoods controlled by gangs (warlords, really) as government has failed to maintain a security presence;
• 45% who are middle class and in constant fear of losing that status but still thinking they could become wealthy with a little more effort; and
• 5% wealthy people mostly in secure communities with their own police forces, schools, and privileged lives and many of whom think they are sincerely trying to help the other classes.

And so the current goobers in Sacramento begin the 2010-11 Fantasy Budget Game. Other goobers run to become the new Gubernator. Meg Whitman, the likely Republican nominee, believes she can do something under a corporate (government) structure that leaves no room for creativity. Jerry Brown, the likely Democratic nominee, believes he can work with the State's financial problems he created the last time he was Gubernator.

It is time to take a hard look at dividing California into three states as I outlined a few years ago. Only by doing something that radical will California stop its plunge below mediocrity.