California is very happy to have a budget surplus that came as a big surprise. Wealthy residents sold off investments at the end of 2012 to avoid higher capital gains when the Bush-era federal tax cuts expired. California also had better housing and stock markets and a temporary sales and income tax increase. Heavy spending cuts added to the surplus. Governor Jerry Brown reported a $1.2 billion surplus, but the state Legislature’s independent financial analyst reports a higher figure of $4.4 billion. According to a May 25 LA Times article, a tense battle will come before legislators come to agreements about spending. Some are reluctant to make long-term spending plans based on one-time events. Others want key programs taken care of first, but disagree on which programs are the most important.
Having suffered through a $60 billion deficit just three years ago, the leadership is at odds over which programs should be restored. California recently installed a strong Democratic majority in the state Assembly and Senate. The Democratic governor, however, is a known penny pincher.
According to a May 26 Boston Globe article, Republicans must sit on the sidelines of any upcoming spending battles. Last November’s elections gave California Democrats two-thirds majorities in both the Assembly and the Senate.
The delightful dilemma comes after severe cuts to beloved social safety net, highway and road repairs and other programs, but a new attitude has developed. The arguments for and against a spending spree are expected to become intense and heated. H. D. Palmer is the director of external affairs for the California Department of Finance. He said, “We don’t believe it is prudent to budget on the capital gains. It wasn’t that long ago when we had the same experience during the dot-com boom. We don’t want to see that movie again.”
One area of early contention is the conflicting numbers. California’s independent legislative analysts do not hold back when governors misreport budget surpluses. Brown’s $1.2 billion estimate drew heavy criticism, especially when he gave that low-ball estimate during critical budget talks.
California is not the only state to enjoy a budget surplus. At least seven other states, including Connecticut, Utah and Wisconsin, have reported budget surpluses in recent weeks. Those states will go through spending battles that will rival the fights over past budget cuts.
California now faces difficult choices. Painful cuts need to be restored, but with caution and respect for the fleeting nature of state budget windfalls.