California Balanced Budget by Moving Costs Off the Books

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Reading the Legislative Analyst's Office report on the budget enacted earlier this fall is sobering. While that budget was derided as a phony house of cards, it's actually much worse than that.

Most reporting on the budget focuses on the state's general fund. But, as the LAO makes clear, the steep decline in the general fund (from $103 billion in 2007-08 to $86.6 billion in this plan) is partially off-set by a shift to special funds. Spending in those funds is budgeted to be roughly one-third higher ($7.5 billion), as a result of shifts in health and transportation funding. If this sort of shifting and accouting sounds familiar to you, it's because it is. Companies like Enron created outside entities and accounts to hide liabilities.

Why the shifts? Because the state is no longer able to balance its general fund budget. The year-end general fund deficit for the 2009-2010 fiscal year was $6.3 billion, which the legislature and governor are paying for by, among other tactics, assuming $1.2 billion from the one-time sales of 11 staet properties and by counting on $5.4 billion in money from the federal government. (only $1.3 billion of which has been approved).

This is a reminder that the state fiscal crisis is about far more than the general fund. It's about all the state's funds and all its financial obligations, including unemployment insurance, pensions and retiree health care. And it's about a governing system that makes it nearly impossible for elected officials to reach responsible agreements on budget issues.

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