December 12, 2007  

Deficit Figure Keeps Rising

In August, when the 2007-08 State Budget was passed, the structural deficit was expected to be $6 billion for 2008-09. By the middle of November this had grown to $10 billion when the Legislative Analyst released her projections. Now the Department of Finance is beginning to whisper $14 billion. 

What will it be by the time the 2008-09 Governor’s State Budget proposal is released on January 10th? It is always better to walk in with a big deficit and scare everybody to force deeper cuts. Historically, however, revenue estimates improve by May and the smoke and mirrors options that were rejected in February start looking a lot better by July.   

Governor Schwarzenegger is now riding the bust-to-boom-to-bust cycle. He has had only improving economic circumstances during his tenure even in his first year when things were bad but not as bad as in the prior year. His budget proposal will provide the best look at his priorities for the rest of his term. What he protects now will probably be expanded when the state’s economy improves in 2009. What he proposes to cut now probably will not be restored later.

Please contact me if you have any questions at 916.441.3300 or dwalrath@m-w-h.com.

~Dave Walrath