Budget Making in the Land of Oz

Four years of cobbled-together California budgets has cost the state government and county governments dearly. In the first year a tax hike helped the balancing act, but since then the budgets--which under law must be balanced--have been based on hopeful assumptions and sleight-of-hand maneuvers that are haunting the state now.

The 1994-95 budget included improbable billions from the federal government to reimburse the state for costs associated with illegal immigration. The money, which the state deserves but never should have counted on, never materialized. And last week, to worsen matters, the U.S. Department of Health and Human Services disallowed $315 million in federal payments for disputed Medi-Cal costs. (Financially strapped Los Angeles County was to receive about 90% of that.) In addition, the state faces huge settlements if plaintiffs prevail in lawsuits challenging the legality of some state budget moves.

None of these setbacks were anticipated in Gov. Pete Wilson’s proposed budget for fiscal 1995-96. In fact, his new budget includes some of the gimmicks used in past years, among them counting fantasy federal money for state costs associated with illegal immigrants. He also wants to cut income tax 15% even though the state faces a $2-billion shortfall in the 1994-95 fiscal year.

The state’s independent legislative analyst office has sounded warnings about the budget that Wilson proposed in January. Not only does the LAO caution about the pending lawsuits and the carry-over deficit, it also pointedly notes that the budget, to save $1.5 billion, depends on federal actions to provide new funds or to change laws or waive existing program requirements.

The state gambled with such tactics in seeking the $315 million in federal funds for Medi-Cal. California claimed its sophisticated new computer system could separate administrative costs from medical operation costs and that the federal government owed the extra money for the administration costs. Washington rejected the claim on the basis that when it pays for a clinic visit, that payment is intended to cover the paperwork as well.

All the state’s counties, particularly Los Angeles County, could endure new hardships under Wilson’s budget. He wants to shift onto them state responsibility and funding for some welfare and social services. In exchange, the state would pay a greater share of local court costs, but counties overall would lose $241 million in the realignment. An analysis for several counties shows that altogether counties would lose $430 million, with Los Angeles County losing $100 million.

The state’s budget problems do not result solely from cyclical slumps such as the recession. They reflect deep structural problems that require tough, unpopular political choices. According to the private, nonpartisan California Citizens Budget Commission, Sacramento has been playing a shell game to hide deficits and questionable borrowing. The commission recently recommended reforms in the state budgeting process. In the meantime, Sacramento ought to shift its budget making from the land of daydreams to the arena of reality.