Dan Walters: Truth on budget numbers hard to come by

By Dan Walters
dwalters@sacbee.com

Perusing the state budget is not unlike accompanying Alice on her plunge down a rabbit hole into Wonderland.

Even a reasonably sophisticated Californian who seeks some hard data on the state's fiscal situation finds himself, like Alice, in a world where up is down, down is up, and what appears to be true is often false.

We are routinely force-fed numbers from those who have a political interest in making them add up a certain way. And the more they assure us that they're not using any gimmicks, the more suspicious we become.

Borrowed money is counted as revenue, payments due in one fiscal year are magically transported into another year, income is inflated, liabilities are minimized, increases in spending are characterized as cuts, and accounting is constantly shifted between cash and accrual bases.

The search for fiscal clarity takes us away from Capitol politicians and their sycophantic aides. The first stop is the Legislature's own budget analyst, the soon-to-retire Elizabeth Hill, who has stoutly maintained her office's independence and nonpartisanship and whose numbers are among the most reliable. Even so, the legislative analyst still deals with the budget as it has evolved, a somewhat opaque jumble.

Nongovernmental analysts are another stop. The left-leaning California Budget Project has just published one of its periodic, side-by-side comparisons, in this case showing the conflicts between what Gov. Arnold Schwarzenegger proposes in the revised budget he released in May and what the Legislature's dominant Democrats have just finalized.

The clearest set of numbers, however, may not be found in any version of the state budget but rather in the actual cash reports published by the state controller's office. They tell us what's coming into the state treasury from various taxes and other revenue sources and where it's being spent.

There is some discrepancy between the controller's numbers and the budget's, because the former show what's already happened, while the latter project what's supposed to happen. But the controller's report gives us a fairly clear picture of the state's finances. And it's not pretty.

During the fiscal year that ended June 30, the general fund received $96.4 billion in revenues and spent $103.4 billion. This means there was a $7 billion shortfall, much of it covered by tapping reserves, delaying some payments and borrowing several billion dollars.

Schwarzenegger and legislators may disagree sharply on the 2008-09 budget, but they do agree that it has a $15.2 billion deficit. That would indicate, therefore, that roughly half of the overall deficit is "structural," meaning it's built into the system, and the other half is cyclical, caused by a deteriorating economy.

The controller's report also indicates why the deficit will be difficult to close without new taxes or other revenues. During the 2007-08 fiscal year, three-fourths of spending was in what are called "subventions" to local governments, especially counties, and school and community districts, while the state directly spent the remaining one-quarter on its own operations, most notably $9.2 billion on prisons and $6.3 billion on four-year colleges.

Only $11.3 billion was spent on everything else in state government (aside from special fund agencies such as Caltrans). Nearly a third of that was to service state debt.

Those who blithely contend that cutting the state bureaucracy would somehow close the deficit (as Schwarzenegger once did) are all wet. Education, health and welfare services, prisons and aid to local governments consume 90 percent of the state budget, so any meaningful spending reductions would have to come from those areas.

That's about as starkly realistic as it gets.