The state’s budget shortfall is attributable to two factors: (1) large declines in state tax receipts, and (2) escalating government costs. Analysis by the Legislative Analyst shows unprecedented declines in revenues that have not been met by commensurate adjustments in spending growth.
At the same time, the state has been under-investing in key infrastructure such as roads, water, utilities, and schools. This ultimately threatens business investment in the state and the creation of the jobs needed to let all Californians share a brighter future.
The magnitude of the state budget shortfall and the barriers to resolving it have exposed major structural problems in the underlying budget process. Two key issues that must be addressed are budget volatility, and the need to reform state and local finance so as to better align taxing authority and spending responsibility. The failure of the governor and the Legislature to adequately constrain spending as revenues fell exacerbated the magnitude of the deficit and its social and economic consequences. The flexibility of the governor and the Legislature to deal with the subsequent crisis has been limited by Propositions that predetermine how more than half of the budget must be spent.
Meanwhile, the ability of county and city officials to pay for services with locally raised taxes is hampered, as they have come to increasingly depend on allocations from Sacramento that are too often not sustained in difficult times.
A broad coalition of business, labor, education and local government leaders has come together to articulate a set of foundational principles that we believe should guide reform. Based on sound economic and management principles and a commitment to improve fiscal responsibility, the coalition will review legislative proposals and ballot initiatives, undertake new initiatives where necessary, and facilitate a public consensus in favor of a more effective tax and budget system.
