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California $7 Billion More in the Budget Hole Than Expected

Over the weekend, California Governor Jerry Brown announced that the budget deficit for the next fiscal year has nearly doubled, from $9.2 billion to $16 billion. This almost assuredly means a commensurate increase in cuts to the state budget.

In the last fiscal year, Brown staved off a series of budget cuts by playing a game of “ta-da.” He assumed a fiscal bump from an improving economy of well over $4 billion, and used that windfall to plug the budget. That money never actually materialized, and indeed many were skeptical it ever would at the time. This bought a year to save the budget from key cuts, particularly in health care and education. But that has probably come to an end. Gov. Brown will announce the “May revise” today, with new budget projections and figures, and everyone expects a new round of cuts. “This means that we will have to go much further, and make cuts far greater than I asked for at the beginning of the year,” Brown said in a taped message.

The idea of plugging this hole with taxes is actually already baked into the cake. Because of California’s 2/3 requirement for any tax increases, Brown had already planned to go to voters in November with a series of tax hikes, which largely but not entirely fall on the rich. Brown recently turned in signatures for this measure, and it’s expected to appear on the November ballot. The governor made reference to it in his YouTube message, in fact exploiting the new budget deficit by saying that cuts will be much worse if the new taxes are not approved. “We can’t fill a hole of this magnitude with cuts alone without doing severe damage to our schools,” Brown said. “Please join me in getting our state back on track and investing in our common future.”

Sadly, Brown’s plan would not invest in the common future of Californians. The state has been cutting its budget consistently for the past four years, and there’s simply no fat left to trim. The next set of cuts will all be completely unpalatable and in many ways counter-productive.

Constrained by a balanced budget amendment, and with no help coming from Washington, California has been reduced to eating its own seed corn, particularly in the area of education. A new study released last week showed that California is producing more students accepted to the California State University or University of California programs than ever before. But less students are enrolling, simply because they cannot afford it.

PPIC reports that among all high school grads, enrollment in state universities has declined by nearly a fifth since 2007, from 21.5 percent to 17.8 percent. And here’s even worse news: The enrollment rate among the highest qualified students, those who have completed the a-g requirements, has also declined by nearly a fifth, from from 67.5 percent to 54.9 percent. Both CSU and UC have seen enrollment declines.

So what’s happening to these students? Are they going elsewhere? A few are. PPIC reports no increase in enrollments at private California universities and only a small increase in enrollments at community colleges (which have their own budget problems) and out-of-state universities. Their conclusion: “It appears that sizable numbers of high school graduates in California are increasingly less likely to enroll in any four-year college and that a small but notable share of those who were eligible and even accepted into UC and CSU do not attend college anywhere.”

We’re pricing a generation of students out of college in California. We’re not extending medical support to a generation of poor people. With this and other austerity measures, we are decidedly lowering the productivity of the entire state for decades to come.

And because of California’s sheer size, this will have an impact, however modest, on the overall national picture. This is a $7 billion austerity hit, wiping out that level of economic stimulus from, say, the payroll tax cut and extended unemployment insurance.

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David Dayen

David Dayen