Sacramento Topics

Why does California seem to struggle with its budget every year? Is state spending really out of line, as Republicans suggest, or are Democrats right when they say we need more revenue? In this overview, Bee Columnist Dan Walters walks you through some mileposts on the road to this year's state budget stalemate.

Before 1978, fashioning a state budget each year was a fairly routine task. But the passage of Proposition 13 in June 1978 began a radical budgeting makeover. The measure slashed local property taxes, and state general fund spending jumped as the state assumed greater responsibility for schools and local services.

In 1988, even more pressure was put on the general fund when voters adopted Proposition 98, which sought to reserve a guaranteed portion -- 40 percent or more -- of the state's revenues for schools.

California weathered a severe recession in the early 1990's, but at the turn of the century the surging dot.com industry flooded state coffers. (See state spending in relation to personal income.) Revenues -- mostly income taxes -- skyrocketed to $75.7 billion in 2000-01. Under GOP Gov. Pete Wilson and then Democratic Gov. Gray Davis, state spending for schools and health care for the poor jumped sharply. Republicans demanded -- and got -- billions of dollars in corporate and individual tax cuts, including a two-thirds cut in what's known as the car tax. (See data on the general fund's growth.)

Notoriously, the dot.com bubble burst in 2001. State revenues sank, leaving a $14 billion operating deficit that year. Thus began a cycle of deficits that has plagued the state ever since.

Davis reinstated the car tax to raise revenues, but the move only added fuel to a recall drive against him. After winning the 2003 recall election, actor Arnold Schwarzenegger fulfilled a promise to repeal the car tax. He then persuaded voters in 2004 to approve $15 billion in bonds to refinance short-term debt the state could not repay. Repaying those bonds is now a multibillion-dollar bite on the general fund, worsening the deficit.

Today, amid an historic nationwide recession, the deficit for the coming fiscal year is estimated at $24 billion. Schwarzenegger and the Democratic-controlled Legislature are trying to agree on a budget after voters on May 19 overwhelmingly rejected a package of ballot measures aimed at closing the budget gap.

The Republican governor is now refusing to raise taxes to cover the deficit, while Democrats are trying to protect health and welfare programs Schwarzenegger has proposed to cut. (See the biggest contributors to spending growth.)

Source: California Department of Finance, Legislative Analyst's Office, Bee research by Dan Walters