The U.S. budget deficit as forecast by the Congressional Budget Office (CBO) may drop to $643 billion in fiscal 2013, which would be a substantial improvement from earlier predictions. However, a more impressive turnaround is occurring in California, which expects a balanced budget, if Governor Jerry Brown has his way. California’s economy was worse off than the nation’s by a considerable margin, as the United States sank into recession, and its recovery should be a lesson to the federal government.

The CBO, which provides nonpartisan analysis to the U.S. Congress, recently offered updated budget projections:

If the current laws that govern federal taxes and spending do not change, the budget deficit will shrink this year to $642 billion, CBO estimates, the smallest shortfall since 2008. Relative to the size of the economy, the deficit this year—at 4.0 percent of gross domestic product (GDP)—will be less than half as large as the shortfall in 2009, which was 10.1 percent of GDP.

Unfortunately, the progress may not be permanent:

However, budget shortfalls are projected to increase later in the coming decade, reaching 3.5 percent of GDP in 2023, because of the pressures of an aging population, rising health care costs, an expansion of federal subsidies for health insurance, and growing interest payments on federal debt

Out in California, where unemployment ran much deeper than across most of the rest of the nation, the state nearly fell into default. Governor Brown said his proposed budget would leave the state’s financials “in balance for the foreseeable future.” His plan for improvement includes belt-tightening, which none of those put forward by Congress or the White House would do. California has become, and could remain, a model for austerity, and its possible success shows a way to blaze a path to control debt.

Governor Brown framed his approach:

When Governor Brown took office, the state faced a $26.6 billion budget deficit, estimated annual gaps of roughly $20 billion and a $35 billion “Wall of Debt.” The revised budget plan unveiled today is balanced and on track to lower the state’s debt to $4.7 billion by 2017—a reduction of over 86 percent. This was achieved through billions of dollars in permanent cuts in the 2011-12 and 2012-13 budgets as well as temporary revenues passed by voters last year.

These cuts, however, will not come at the expense of much of what Brown believes is critical to California’s future:

At the center of the May Revision is a significant investment in the state’s public schools. From 2011-12 to 2016-17, the Proposition 98 guarantee will increase more than $19 billion from $47.3 billion to $66.5 billion. The plan provides $1,046 more per K-12 student in 2013-14 than was provided in 2011-12 and funding levels will increase by $2,754 per student through 2016-17.

Brown’s vision marries sharp government spending to the one thing he believes is critical to the state’s longer term recovery. He wants to address a problem that has been widely admitted as a grave danger to the future of U.S. business and R&D. The average American student has fallen well behind the educational attainment of students in the rest of the developed world. This puts the future of innovation in a grave position.

Brown will get a great deal of resistance to his plan, but he likely will not budge from his position on austerity, with his one important investment in education. The CBO forecast does not assume federal budget spending will give the future economy a boost, at least not with any specific plans to invest in the foundation of America’s education.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.