TOPICS > Economy

Tough Times: California’s Budget

May 8, 2003 at 12:00 AM EDT


JIM LEHRER: These are tough times for state budget keepers. Tonight we begin a series of reports on how some states are dealing with record budget deficits. Spencer Michels reports from the state with the biggest problem: California.

SPOKESPERSON: Okay. Keep swimming. There you go.

SPENCER MICHELS: California spends about $3 billion a year on child care for 600,000 children of low- income families, a program that has allowed a record number of single parents to work.

SPOKESPERSON: Okay, let’s go wash your hands.

SPENCER MICHELS: But California will probably soon become one of nearly half of the states that are reducing childcare subsidies in tough economic times. This program and most other state-funded services are in jeopardy as California faces a budget shortfall of up to $35 billion, larger than most states’ budgets. Legislative analyst Elizabeth Hill illustrates how deep the problem is.

ELIZABETH HILL: I think the easiest way to understand the magnitude is if the state of California no longer put general fund money into the Medicaid program, which we call Medical in California, if we no longer put general fund in the University of California, which has nine campuses, or twenty-three campuses of the state university, and if we closed our adult prisons, we would still not balance this budget.

SPENCER MICHELS: Hill says California’s technology boom in the late ’90s brought in big tax revenues. But then the high-tech bubble burst and taxes plummeted along with the economy, more so in California than anywhere else.

ELIZABETH HILL: We lost more than $11 billion in one year. At the same time revenues were going up, we made spending commitments and tax relief commitments, and so we’re still digging our way out.

SPOKESPERSON: You may now eat.

SPENCER MICHELS: Childcare for the poor and other state programs were expanded, which was a mistake, according to Republican Senate Minority Leader James Brulte.

STATE SEN. JAMES BRULTE: That revenue should never have been spent on permanent programs. It could have been spent on tax rebates; it could have been spent on one-time projects. Instead, a lot of that money was spent on permanent government expansion.

SPENCER MICHELS: Now, in his budget, Democratic Governor Gray Davis has proposed major cuts and some new taxes, moves he knew would draw complaints.

GOV. GRAY DAVIS: The business community will complain about the budget. The environmentalists will complain about the budget. And you know what? They’re all right. But I had no easy choices and it’s my job to produce a balanced budget, which I’ve done.

SPOKESPERSON: We need a real budget proposal that answers the needs of Californians.

SPENCER MICHELS: Advocates from dozens of interest groups have descended on the state capitol to plead with legislators not to cut their specific programs.

WOMAN: I, too, I’m very concerned about this budget cut.

SPENCER MICHELS: The childcare lobby brought former welfare mothers to Sacramento to testify that if funding was cut, they would likely wind up back on assistance.

WOMAN: Cutting the stage-three program affects children, parents, the community in such a big way. It’s a domino effect.

SPENCER MICHELS: Latonya Love, who works full-time in a medical office, stopped receiving welfare benefits seven years ago. The 33-year-old single mother of three attends night school, studying to be a lab technician. All of this is possible, she says, because she has reliable childcare. The state picks up the $1,600-a-month cost, which is more than half her salary.

LATONYA LOVE: If I were to lose my childcare, it would be a major setback. I wouldn’t be able to pay my rent, buy food, medical expenses. So my option would be, you know, not to work if i didn’t have subsidized childcare.

SPENCER MICHELS: The governor says he agrees that cutbacks will hurt, but he doesn’t know what else to do.

GOV. GRAY DAVIS: It pains me to have to seek reductions in this area, and in lots of other areas I feel passionate about. But it’s my job to present a plan that hangs together and that’s balanced, that causes the least long-term damage to the people and to the state.

LATONYA LOVE: I understand the state is in a bad state, and i understand, you know, we have to make cuts, but this is ridiculous. You say people on welfare, they need to work. They start this “welfare to work” program. Well, they’re doing that. You say if you cooperate in this program, we’ll give you childcare. They’re doing that. And then to come around and say, “Well, you know, we’re having a rough time. We’re going to need to cut that childcare, but you still need to work.” You can’t have it both ways.

SPENCER MICHELS: The childcare dilemma is just one of the problems facing California’s legislature, which is dominated by Democrats. Governor Davis has proposed severe cuts in education– more than 20,000 teachers were told they could lose their jobs– and in health benefits for the poor. The only program that will likely receive more funding is for state prisons. But Democrats say the cuts are too drastic, and Republicans say they won’t approve new taxes.

STATE. SEN. JAMES BRULTE: Raising taxes in a weak economy does not result in more revenue. It results in less revenue. In the 1991-’92 budget, the state took in roughly $42 billion. That was the year the legislature raised taxes on the rich. That was the year the legislature enacted a snack tax. That was the year the legislature enacted a sales tax increase, and the next budget year we had a billion dollars less in revenue and the next budget year we had a billion dollars less on top of that. And that was after taxes were raised.

SPENCER MICHELS: Instead of raising taxes, Republican legislators are proposing the state borrow $10 billion over five years.

JENNY OROPEZA, Chair, Assembly Budget Committee: The Republicans so far have said, “no taxes, no taxes, no taxes.” The mantra.

SPENCER MICHELS: Democratic assemblywoman Jenny Oropeza, here addressing a latino political group, says investment bankers are unlikely to lend California billions of dollars unless there’s new revenue to finance the debt.

JENNY OROPEZA: They haven’t really told us how we would solve this problem without taxes without decimating life as we know it for many Californians.

SPENCER MICHELS: She says the programs begun in the ’90s- – childcare and others– remain valuable.

JENNY OROPEZA: We did a lot of investment in infrastructure, our roads and highways. We also did a lot of investment in education, and I think that was money well spent. And we do need to be aware that every time you make an investment that’s going to cost you down the road, that you’ve got to plan for that.

SPENCER MICHELS: Governor Davis, for his part, said he did plan.

GOV. GRAY DAVIS: People as distinguished as Alan Greenspan were saying we’re going to have an economic recovery in 2002. The recession will be short and brief. Well, it turned out all the experts were wrong. We made decisions based on the fact that this would be a short recovery. We didn’t want to kick people off programs if the economy was going to snap back.

SPENCER MICHELS: But the specter of decreased benefits for the working poor, like Latonya Love, who rely on government programs, plus cuts in education and the likelihood of increased taxes have cost Davis personally. His popularity has plummeted, and a recall drive against him is underway. In recent negotiations, the governor and top legislators have made some progress in reducing the shortfall. But additional savings of $30 billion still must be found. Most proposals for bridging that gap assume the California economy will recover soon.