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Losing the Budget Battle

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Sometimes, good state budget news can be more than offset by bad news on the same subject. Case in point: the most recent numbers on the condition of the state general fund.

California State Controller John Chiang announced last Thursday that general fund revenues had taken a turn for the better.

As of November 30, for the first five months of the fiscal year, revenues are down "only" $1 billion from original projections.

That's a lot better than a month ago, when the state was down $1.5 billion, and on pace to miss entirely the extra $4 billion necessary to avoid any additional budget cuts in the next few weeks.

On this note, some observers see light at the end of California's lengthy recession. (Note: This would be a good time to shout for joy inasmuch as the rest of this story moves in the other direction.)

Now for the bad news. While overall state revenues were higher than expected, state expenditures were $2 billion more than anticipated.

The state Controller's office says that the largest categories including funds for public education ($700 million) simply have been spent ahead of schedule.

Some of the expenditures for medical assistance and development services ($670 million) may be on the hook, however, because of waivers that haven't been--and may not be--approved by the federal government.

Coupled with the $1 billion in missing revenues, that means the revenue gap for the first five months stands at $3 billion. It also means that the "automatic triggered cuts" will certainly take place to the tune of at least $2 billion.

Whoops.

All of this points to a part of the budget process that is often overlooked, namely that the key to truly balancing the state budget lies in the combination of added revenues and controlled expenditures. Until both sides of this equation are properly addressed, any extra revenues will have very little, if any, impact.

So much for any thoughts of an improving economy.

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