State of the Budget…

So Governor Schwarzenegger is not just proposing mid-year cuts, but also a “budget reform” that includes giving himself more unilateral power to make cuts. Here’s the details, from his materials.

Today, Governor Schwarzenegger proposes the Budget Stabilization Act, a Constitutional amendment to fundamentally reform the state budget process. This reform requires a vote of the people. The Budget Stabilization Act:
* Establishes a Revenue Stabilization Fund (RSF), which is simply a savings account for excess revenues taken in by California during a prosperous year. This will allow the state to transfer the difference from the RSF into the General Fund in years when tax revenues are below average and California cannot meet its spending obligations.
* Allows California to reduce spending when necessary. Right now, California doesn’t have this flexibility. Once the Governor signs the budget, spending is locked in unless he declares a fiscal state of emergency and calls a special session. Under this act, state agencies must reduce their spending if a year-end deficit is projected by the Department of Finance.
* Requires the legislature to enact a statute specifying how the state will reduce spending to meet Budget Stabilization Act requirements as soon as a deficit is projected. If the legislature does not specify the reductions-or if their reductions are insufficient-the amendment allows the Governor to waive state law and regulations in order to achieve the savings needed to bring California’s budget into balance.
* If the Budget Stabilization Act had been in effect since 1998, the state would not have developed a structural budget deficit. In years where a deficit emerged, the Budget Stabilization Act would have triggered moderate cuts automatically to avoid draconian cuts later.

There’s clearly a separation-of-powers, checks-and-balances issue with giving the Governor so much additional authority to make cuts and “waive state law and regulations.”

Both the Democratic legislative leaders gave very good responses to the State of the State, making the case about why a cuts-only strategy to the budget crisis–or a regime of automatic cuts for the future–does not work.

Nunez made the case of all the painful cuts you could make and still not make up the shortfall. Perata made a case about the future, asking if California really wanted to handcuff its ability to improve education, transportation, social services, now and into the future.

Important points to remember in the months ahead.

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