California is terribly low on money once again. State Controller John Chiang issued a report in which his office said its “monthly report covering California’s cash balance, receipts and disbursements in July, showing revenues were down $538.8 million (-10.3 percent) below projections from the recently passed state budget.”
The state faces a series of expense cuts triggered by goals set by the government. A drop in funds for public schools are expected to be among the programs damaged early in the cost-cutting cycle.
No matter how brutal the reductions seem, especially because they could touch precious budgets like those for education, the federal government might learn something from California’s trigger system. The new “Super Congress” (Joint Select Committee on Deficit Reduction) made up of 12 members of the House and Senate is charged to reduce the U.S. deficit by Nov. 23, 2011. The cuts are supposed to be $1.5 trillion over a 10-year period. Some experts point out that this is an extremely small sum compared to the projected federal expenditures between now and 2021.
California has to live within its means to a great extent because it does not have the power to borrow money in the capital markets with the same ease the U.S. government can and it cannot “print money” as the Treasury can. That leaves it with the stark realities that come with overspending and undercollecting.
Another lesson from California’s problem is that U.S. tax revenue could fall far short of budget. Another recession is in the offing. Even if it does not come, an economic slowdown has. Corporations and individuals are likely to pay lower taxes because their incomes are being hurt by a difficult economic climate.
The Congress and the Administration will not agree to “triggers,” at least not at a level that would make the cuts that would balance the federal budget. That’s too bad. It is probably the only way to start to bring down the national debt.
Douglas A. McIntyre
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