Gov. Arnold Schwarzenegger said last week that California's budget delay costs the state $52 million a day. In what's becoming a near-annual tradition, the governor today installed a budget delay counter outside his Capitol office, blaming the Legislature for more than $300 million in costs as of this afternoon.
Despite the clock's implication, the $19.1 billion state deficit is not growing on a daily basis. The projected deficit size essentially remains fixed. What changes is the amount of time that California has to reduce it.
Schwarzenegger divides $19.1 billion into 365 days for an average of $52.3 million a day. If the budget had been on time, the state in theory would have reduced its expenditures and increased revenues by that daily amount on average in the 2010-11 fiscal year.
The actual impact of a budget delay is not as simple as the budget counter suggests. That's because not all deficit solutions have a daily impact.
On the cuts side, it's true that as each day that goes by, the state likely loses an opportunity to save money from reductions in SSI/SSP grants or state-worker salaries. For each day in lost savings to such programs, the state has to find other ways to make up for what would have been saved in such cuts.
But that's only if it is assumed the state will rely on those cuts for savings. Republicans do, Democrats don't.
That logic applies to the revenue side as well. For instance, Democrats want to impose an oil severance tax to raise $1 billion a year. If the state waits 45 days into the fiscal year to impose that tax, it would raise less than $1 billion or have to impose a higher rate on oil companies to get a full year's worth of revenues.
Other cuts are not as tied to the calendar.
State leaders are already counting on billions in savings that likely won't be affected by legislative delay. That includes $3.4 billion in federal aid and $811 million in savings from prison health care. The federal health care receiver has already said he is committed to cutting that much out of his budget, while it's up to Congress to decide whether California will receive that much in assistance.
Lawmakers are counting on selling 11 state office buildings, something that can occur at any point in the budget year. They're also assuming about $2 billion in internal fund shifts that also do not require immediate legislative action. And lawmakers can still eliminate about $2 billion in corporate tax breaks in 2010 and 2011 if they change the tax laws by the end of the year.
There are some solutions for which it would be beneficial to act immediately and other solutions that would not suffer by a one or two month delay. Some solutions can be applied retroactively -- for instance, a budget assumption about 2009-10 school funding -- while others cannot.
"There isn't a way to get a precise number," said Michael Cohen, deputy legislative analyst with the nonpartisan Legislative Analyst's Office. "It's more complicated than a simple divide by 365."
Ultimately, the true impact of a budget delay will depend on which solutions are used to bridge the deficit and whether they are broader than they otherwise would have been. There may also be additional borrowing costs if state leaders wait so long that they threaten the state's credit rating or borrowing ability. There may be interest payments if the state uses IOUs. Those impacts cannot be presented cleanly in a budget counter.
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