California Insider

Strange that the governor, just as he is closing in on a balanced budget, wants to change all the definitions and stop talking about the structural deficit. You'd think he would want more focus on it, not less. Anyway, it doesn't matter. The credit rating agencies will want to see the real numbers, and the LAO will no doubt cut through the spin and tell us what she thinks of the bottom line.

The governor's take is that he has reduced what he is calling the "gross operating deficit" in 2007-08 to about $1.8 billion. But after backing out things like spending on retiring the deficit bond, and one-time revenues, he says the true, or "net" operating deficit would be zero. Actually a tiny, $20 million surplus.

This is not such a wacky way of looking at it. What he is saying is, how much money will the state take in during that 12-month period, and how much will it spend on services delivered during that 12-month period? That's a decent way to judge the government's fiscal prudence. But it's not the entire story.

As for the structural deficit, the projection of revenues versus spending in the year after the proposed budget is done, the guv and his people now say don't bother, that's too far away to be meaningful. But that's the deficit he -- and we -- have been talking about for years. And that's the deficit he claims to have inherited. So he's not going to get away with ignoring it now. Besides, the structural deficit number is perhaps more important than the operating deficit -- gross or net -- because it tells us what the long-term trendlines look like, and it's an early red flag if the state is headed for trouble, or not getting out of trouble quickly enough.

Finance Director Mike Genest, when pushed, said his best guess of the structural deficit in '08-09 is about $800 million. If the LAO agrees, that's pretty good news, since it's billions less than was projected a few months ago. We will have to wait and see.

The governor's press conference was supposed to be about the budget, but some of the first questions were about, well, other stuff.

Q. It is true you are going to change parties and become an indpendent?

A. No.

Q. How did you really break your leg?

A. (Paraphrasing here): By skiing too slowly. He said he was moving so slowly that when he fell, the pressure "torqued" his femur, complicated by the action of his artificial hip. (Did we know he had an artificial hip?) Anyway, he said if he had been going 50 mph when he fell, which he says he's done often (50 mph?) he would have been fine. But it was that slow fall that did him in. He never did say why he fell when he was going so slow. Hey, it happens.

The budget, by the way, is balanced, or so they say. More on that later, and in Thursday's column.

Here is my column on the governor's speech.

Short version: behind the smiles, the governor is pushing the Legislature again in ways that will make many lawmakers from both sides of the aisle uncomfortable. He is no longer issuing ultimatums, but he's no less impatient than he ever was.