Like it or not, we all knew this day was coming. Gov. Gray Davis unveiled his revised state budget last week, which offered a quick-read of the state’s slumping economy.
Transportation suffered serious cuts, as did funding to clean up the state’s coastline. Local governments took a hit, too, as some $250 million promised to cities and counties and other special districts was withdrawn in Davis’ revamped fiscal 2001-02 proposal released May 14. In fact, local agencies would have reaped about $7 million. But rather than reacting with extreme indignation , losing $7 million can do that to you , local officials seemed prepared for the news, reacting more with a sense of resignation than one of anger and defiance.
It seemed to be the prevailing mood across the state, and while the summer of 2001 could return us to the bitter budget wars waged in the early 1990s, the attitude so far seems to be more cohesive than divisive.
Perhaps the Davis administration’s spin machine has adequately prepped us for the news, but anyone who recently checked on their 401(k) and has paid their utility bill this month understands our state’s tenuous financial position. Based primarily on a weakened stock market and soaring energy costs, our state’s lawmakers are facing budgetary surgery.
As Californians enjoyed the benefits of the run-up in tech stocks in the late ’90s, the state profited as well. Employees with stock options and other investors reaped the successes of their companies, and in turn their tax payments increased as well. With the market’s prolonged downturn, however, tax revenues from exercised stock options have dropped. After climbing to $141 billion in 1999, stock options and capital gains peaked at $201 billion last year. Ominously, the governor predicts the figure will plummet to about $138 billion this year.
With one utility teetering on bankruptcy and another having already filed for Chapter 11, last week’s PUC rate hike of $5.7 billion for Pacific Gas & Electric and Southern California Edison couldn’t have come at a better time for energy companies. Unfortunately, much of the rest of the state will take it in the shorts.
The surprise here is that the governor merely pared the budget, rather than break out the butcher knife. He relied heavily on the state’s reserves, a move that has created the biggest controversy.
He is tapping the state’s reserve account to the tune of about $5 billion. Apparently, the governor is optimistic our economic slowdown as well as the energy crisis are short-term blips on the radar screen.
His gambit apparently cost the state’s bond rating to slip, as Moody’s Investors Service became the second major credit-rating firm to downgrade state bonds. Republican leaders, bolstered by the news, are vowing to make it their lightning rod in budget deliberations.
Davis should feel fortunate if that winds up being his biggest stumbling block in getting the budget approved by the July 1 deadline , which he all but guaranteed. Provided he’s willing to compromise a bit on tapping so heavily into the state reserves, July 1 is a very realistic target.
It’s imperative the battle over the budget not lock up the Legislature through the summer. With energy blackouts looming, it appears our state legislators will already have their hands full.
