Leaders at the Capitol will have about six months to resolve the new $20.7 billion deficit, and some believe the job will be tougher than the $62 billion budget hole they plugged earlier this year.
The difficulty is multilayered: Many of the easier cuts already have taken place; cutting too much in some areas would jeopardize federal money; federal stimulus money already has been spent; and many one-time solutions already have been used.
The new jaw-dropping deficit - projected through June 2011 - was released last week by the nonpartisan Legislative Analyst's Office only four months after legislators closed a $24 billion budget gap.
State Senate President Pro Tem Darrell Steinberg, D-Sacramento, said the upcoming work, to start in January, will be harder than the grueling budget fights this year, "because the fact is we're starting at a very different place. Look at what's happening at UC - that's Exhibit A here," referring to mass student protests of tuition increases and staff cuts.
Both the governor and the Legislature are mum on what they plan to do, but they likely will carry on the Sacramento tradition of resurrecting many if not all of the ideas rejected this year when lawmakers passed a spending plan in February and returned in July to patch the $24 billion hole.
Gov. Arnold Schwarzenegger has until Jan. 10 to submit a proposed spending plan to the Legislature, and the lawmakers have until June 15 to approve a balanced budget.
Returning to chopping block
Plans likely to return to the chopping block include wholesale elimination of programs providing health insurance for children in low-income families, college aid for low-income students and the state's welfare-to-work program. Other cuts proposed last year by the governor included completely eliminating state funding for HIV/AIDS services and no longer paying for dialysis or treatment for breast and cervical cancer for people on Medi-Cal. Changes to prison sentencing that would save money also are likely to be back as are deeper cuts to state parks. But even doing all of that would save the state just a few billion dollars, nowhere near enough to close the deficit. Eliminating all funding for prisons and higher education would not be enough either.
That fact has leaders looking for new revenues. Old ideas include leasing land for offshore oil drilling, taxing oil drilling, imposing tax withholding on independent contractors and eliminating certain tax credits. Democrats likely will push for extending temporary tax increases passed in February, but that and other tax increases would require the support of Republicans who have vehemently opposed raising taxes.
H.D. Palmer, spokesman for the state Department of Finance, said closing the deficit is going to be "extremely difficult." Schwarzenegger, he added, has made no final decisions on his proposal as administration officials are still compiling their own revenue forecast.
That should be completed in early December, he said, though Palmer predicted that "virtually every aspect of state government will be impacted."
Some parts of state government could be difficult to cut, as billions of federal stimulus dollars that were used to stave off reductions this year require states to maintain their level of services for all or part of next year. Those include higher education and K-12 education, along with eligibility for Medi-Cal.
Budgeting becomes harder
Michael Cohen, deputy legislative analyst at the Legislative Analyst's Office, acknowledged that taking the stimulus funds makes budgeting harder for the upcoming year.
"It's hard to envision last year's deal coming together, but it clearly came with this major hurdle and now that the money's gone we still have the restrictions," he said.
UC Berkeley professor of economics and law Alan Auerbach said extending the tax increases is an obvious place for lawmakers to look for a solution.
"But that is only part of the solution. Where the rest of it comes from who knows?" said Auerbach, who is director of the Robert D. Burch Center for Tax Policy and Public Finance at Berkeley. He predicted the Legislature would "muddle through" the problem with spending cuts and tax increases, adding, "I don't think the world is going to end."
Tax increases require a two-thirds vote of the Legislature, however, and Assemblyman Roger Niello, R-Fair Oaks (Sacramento County), said he thinks there is unanimous opposition from Republicans. Niello was one of only a handful of Republicans to vote in favor of the February tax increases.
"I think it's important to acknowledge that the economy is considerably weaker than it was back then," he said. "To increase taxes is going to be too much of a burden on the economy."
But Democrats say they have a hard time conceiving of cutting any more programs, especially if those are not combined with new revenues.
"We're destroying programs that are critical to our people and our state's economy," said Sen. Denise Moreno Ducheny, D-San Diego, who chairs the Senate Budget Committee. "We cannot continue to abandon the most vulnerable among us and slash the very education and job training systems that have always fueled economic prosperity in California."
Advocates for social and health care programs already are sending strong messages to lawmakers about the impact of more cuts.
Anthony Wright, director of Health Access California, said there is "no question" the proposals his organization most opposed will be back on the table.
"At the end of the day, I don't think it's legally possible to make the level of cuts that are necessary (to balance the budget). It's certainly not morally possible given what already has been cut," he said.
