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California Strikes a Budget Deal that No One Likes

Anthony Randazzo
July 22, 2009, 9:03am

"It's a budget everyone will hate. It's a budget that has gimmicks. But I think it will pass." That comes from California state Sen. Abel Maldonado (R-Santa Maria) yesterday on the state's new budget deal that has come under fire. Officials in Sacramento announced they had figured out a way to close a $26.3 billion budget deficit and stop issuing IOUs to state vendors. But the plan has immediately come under attack.

It is nice to see the state stepping outside the box to sell its $1 billion State Compensation Insurance Fund. Divesting assets is a great way for governments to become "right sized" and help in budget crisis. But all is not well in the Golden State. SEIU and teachers unions are upset because of the cuts. But since education spending has risen 191% over the past 18 years, and spending overall has increased 181% during the same time frame while only drawing in revenues of 167%, it is safe to say everyone is overpaid at the moment. The other two sticky issues are cuts in the prison system and debt shift to local governments. (See a full list of budget changes here.)

Part of the deal will take $4.7 billion from municipalities, such as recalling $313 million in redevelopment funds and drawing $109 million in gas taxes, both from LA County. Essentially this is shifting the debt load from the state to local governments. But again, state spending has been out of control for decades and the cuts for funds to local governments really should be seen more as correcting the excess. However, it is understandable that Los Angeles is upset about the state reaching in and taking money from it, and it is possible that some of the $4.7 billion the state is going to take in will not be equitable cuts.

The prison cuts are another matter. To begin with, the state doesn't have to release the 27,000 prisoners it is talking about. Sure, the system is overcrowded by about 70,000 people, but there are empty beds in private facilities around the country that the state could send those prisoners too at a lower cost then they are paying now, which would be a cost savings and be a growth in business (i.e. economic health).

Still, if you look at the details of what has been proposed in prison cuts, they actually aren't bad ideas. In fact, the budget troubles may just force the state to do what has been politically impossible but necessary for years. The LA Times writes:

The plan resembles recommendations from experts on reducing California's prison overcrowding, which is the focus of a federal lawsuit in which judges have been considering whether to order a mass inmate release. "We have not done a very good job in California of distinguishing between people who are violent and who belong in prison for a long time, and those who could succeed on the outside with supervision, who have not demonstrated any history of violence," [State Senate President Darrell] Steinberg said.

The prison plan would give state corrections officials authority to allow any inmate with 12 months or less on his or her sentence to serve the remaining time on home detention with electronic monitoring. Inmates who are over 60 or medically incapacitated could also get home detention or be confined in a hospital.In addition, inmates who achieve milestones in rehabilitative programs, substance abuse treatment, vocational training or education could receive up to six weeks off their prison terms.

In particular, if any of these prisoners are non-violent drug offenders, then it is best that they are released anyway.

SEUI is seriously threatening a strike and local governments like LA County are planning to sue the state. The next few days of negotiation will reveal if this budget deal can hold. Then it is on to next year's budget crisis.


Anthony Randazzo is Director of Economic Research


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