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California's Mounting Budget Mess

Oct 2009
Policy Brief
By  Joe Nation

At the end of July, California state government ended what was likely the most difficult and tumultuous budget in the state’s history. (It is however, certainly not the last budget crisis California will face. There is evidence that a budget meltdown has again started.) With plummeting revenues, and continued upward pressure on expenditures, the state was forced to close a nearly $24 billion budget shortfall.

California's 2009-2010 (FY 2010) budget dance was abnormally protracted. With the onset of the international financial crisis in September 2008, state leaders had warning that the 2009-2010 budget would be difficult. But because of the severity and speed of the financial crisis, they were forced not only to cut future spending but also to cut current (i.e., 2008-2009) spending from the budget that was enacted in the summer of 2008. Legislators and the governor initially were in agreement on a budget package in February, but that deal was torpedoed when voters rejected virtually the entire package in a May special election. Finally, in late July, with California issuing IOUs and the pain of some budget cuts becoming apparent, the governor and the legislature concluded the 2009-2010 budget.

This policy brief addresses several issues:

  • How did California close this recent $24 billion budget gap?
  • What is the likelihood that the state will need to enact mid-year budget reductions in the next year?
  • What are the long-term pressures on the state budget?
  • What prospects, if any, exist for budget and other reform measures?