Neither problem will be resolved if addressed in a piecemeal fashion, nor will the solutions be easy and quick. The process of addressing the incredibly complex task of tackling the structural problems of the budget and addressing the accumulated $3.8-billion deficit must begin in earnest very soon. Tough decisions have been merely put off. The uncertainty surrounding each component of this budget undercuts any credibility of sound fiscal management. Another troubling development was last week’s federal court ruling that invalidated California’s 1992 welfare cuts.
Their assessment: It was a politically expedient but problematic budget because of the reliance on $3.6-billion in unappropriated federal funds, record short-term borrowings of $7 billion and the inclusion of sledgehammer automatic spending cuts in the event of state revenue shortfalls. The wake-up call from Wall Street rang loud and clear last week when all three bond-rating agencies downgraded California credit worthiness because of concerns about the budget for fiscal 1994-95 and the following year. Designing a preemptive strike to prevent such a fiasco in California should be a big issue in the governor’s race and top priority for whomever takes office next January. Without such a five- or even 10-year strategy, the Golden State could find itself on a slippery slope toward the near-disastrous experience of New York City in the mid-1970s, when it was on the verge of bankruptcy. What is needed is a detailed, comprehensive, long-range plan to get California public finance under control. The message was clear: The new “make do” budget is inadequate and could possibly exacerbate the unprecedented problems faced by the state. Sacramento’s year-to-year crisis management of state fiscal problems received a big thumbs-down from Wall Street the other day.
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