Copyright© 2002 by School Services of California, Inc.

Volume 15                   For Publication Date: December 6, 2002             No. 24

California ’s Budget Deficit Higher Than All Other States  

If you add up the projected budget deficits in more than 40 states, California ’s projected State Budget deficit of $20 to $30 billion is more than all 40 states combined. For governors and state legislatures, the federal spending freeze and slowing of the economy compounds their budget squeeze. According to the National Governors Association, 41 states collected less revenue in 2002 than projected.  

The National Governors Association conducts a semi-annual survey of state finances.  Recent survey results indicate that 23 states enacted budget cuts of more than $8.3 billion since July 1, 2002 . That’s despite tax increases in 24 states enacted before July 1 and extensive use of rainy day fund reserves. The tax hikes, which also totaled $8.3 billion, included higher sales taxes in 17 states, changes in personal income taxes in 15 states, and higher cigarette taxes in 19 states. These cuts and tax increases followed across the board spending cuts that included laying off state employees.  

What other states are doing to combat their budget deficits looks very similar to the actions taken by California to deal with its $24 billion deficit in 2002. To close the gap, New Jersey , Wisconsin , and Rhode Island are using cash from the bonding of their legal settlement with the tobacco industry. Colorado has frozen capital construction projects and Maine has a hiring freeze.  

One of the major issues contributing to California ’s budget deficit problems in the cost of health care. In an effort to get federal assistance, the governors supported unsuccessful efforts in the Senate earlier this year to increase federal social services grants and Medicaid spending by $9 billion. The group also supports the $3.5 billion in grants for police, fire-fighters, and first responders proposed for homeland security spending in the 2003 federal budget. But Congress adjourned for the year without enacting 11 of the 13 spending bills that run the government, leaving virtually all spending on domestic programs frozen at fiscal 2002 levels through January 11, 2003 .  

Looking ahead, the National Conference of State Legislatures estimates the states collectively (not counting California ) face a $17.5 billion budget gap for the 2003 fiscal year as the midyear mark approaches. Governor Davis would have no problem trading California ’s projected deficit of $20 billion plus for the deficits faced by other states.

— Arnold Bray