On the Record With Mac Taylor, California’s Top Budget Watchdog

SACRAMENTO, Calif. — The Legislative Analyst’s Office in California has been described as the conscience of the Capitol, or as one longtime capitol columnist so colorfully put it, ” the skunk that ruins the budget garden party the governor and the Legislature would otherwise enjoy each year.”

Mac Taylor is the fifth person to head the LAO since it was founded in 1941. It is a powerful office whose independent, nonpartisan fiscal findings can deep-six a governor’s budget proposal with one hard-hitting report.

Earlier this year, for example, an LAO analysis from Taylor called Governor Arnold Schwarzenegger’s proposal to spend at least 10 percent of the general fund budget on higher education and no more than 7 percent on prisons “an unnecessary, ill-conceived measure that would do serious harm to the budget process.” The proposal died.

Taylor sat down with Stateline staff writer Pamela M. Prah July 28 in his Sacramento office. Some of the following questions and answers were edited for space and clarity.

O nce again, the state is late with its new fiscal budget and faces a $19 billion deficit. Put this year’s budget and the negotiations into perspective. How unusual is this year ?

Last year topped the charts because of the size of the problem. We had a $60 billion problem over two years out of a $100 billion budget, so it was a phenomenally large problem. I have been telling people that I thought this year’s problem was going to be worse even though nominally it’s only a third of that — $20 billion. We have a lot of solutions that are off the table, like tax increases. You have the loss of the federal stimulus dollars that really helped us. It was really a final piece of our budget last year. Federal requirements of the federal stimulus make it difficult to do too much more in big parts of our budget: schools and MediCal. And we’ve done a lot of one-time things. I don’t want to say the well is dry on the kinds of budget solutions that we can come up with, but clearly it’s not an easy thing to do. I was really worried it was going to be very difficult to resolve and that’s been the case.

The governor has said he would leave office without signing a budget. How realistic is that?

I hope it’s not realistic. I would hate to think we would go six months without a budget. In the past, one key factor that has helped push toward a budget resolution has been cash; just the ability to pay our bills. And we may run out of cash by the end of August or early September. And hopefully that will be an impetus to try and resolve our situation.

The LAO recently published reports on the fiscal impact of ballot measures voters will take up this year. Has the LAO ever done an analysis of the overall impact of all ballot measures to California’s budget?

We’ve certainly listed them all. We put out a publication called “Cal facts” every two years. Some people have argued that it really ties up our budget. I’m not sure that is how I would describe it. I think if you look at many of them, what they have done is raise taxes for a particular purpose. So for example, we have taxed cigarette smokers and we’ve taken the proceeds and spent it on particular health programs. We increased taxes on millionaires and spent it on mental health. We’ve raised a half cent on the sales tax and dedicated it to criminal justice. So if you look at our general fund right now, none of those affect the general fund. They are all dedicated funding sources.

For example on the cigarette taxes, voters had said here is the way we want these monies spent. Now it might have been a good idea when we passed it. Maybe it wasn’t. Maybe over time those needs change. We really don’t have a lot of control of those dollars to redirect them for other purposes that might be a higher priority. They’ve tended to lock up pieces of whatever taxes that voters are willing to pay into little pots of money. But as far as control over our actual general fund budget, I would say the impact is not maybe as great as people think.

Looking ahead, what will need to happen to get a budget?

Well, what usually has to happen is that people have to compromise on their positions a little bit. You have both sides that have very strong feelings. Democrats feel they have cut programs much more than they certainly wanted to and to have to rely heavily on cuts, as the governor proposes, just goes against their grain. And then you have the Republicans who feel they have already compromised with the temporary tax increases from last year and they don’t want any more tax increases. So you’ve got two polar views about the way of the world, and I’m not sure how you get to where you need to without some compromise from both sides. I think that is where we are, waiting to see if that will happen.

How would you describe Californians’ mood when it comes to the state’s budget problems. Are they fed up?

I think people are probably just tired of hearing about it. It has gone on for so long. We’ve had problems, serious problems, most of the years of the past decade. We had a bit of a reprieve in the middle part of the decade, but it has been unrelenting for many, many years. I imagine they are just tired of hearing about it. I hear it, too. This wondering: Why does the problem keep coming back each year? Why does it keep reoccurring? And of course, the simple answer is: If you do a lot of one-time solutions, and your problem is not getting better because revenues aren’t recovering, then you are going to be back at the same place because the solution went away. What we all do, with our own budgets in our own lives, it’s the same thing with legislatures — you look to one-time solutions because you hope you don’t have to take ongoing actions that are severe, either tax increases or program cuts. So you are kind of crossing your fingers, betting on the economy.

When and how will California’s structural deficit be addressed?

I don’t think there is any way to reduce ongoing spending by $20 billion. The kind of cuts you would have to make, it’s just not going to happen. What I have suggested to my bosses is that in arriving at a budget that has to be balanced on its face, that you take as many ongoing solutions that you can, that you do need to reduce ongoing spending in some ways. But do I expect us to get rid of the $20 billion problem that we have identified for the next five years? No. If you are going to do that, you are going to have to work it out over time. So you can pass a balanced budget that you know will result in a problem in a subsequent year because you know it has a lot of one-time, short-term solutions. That’s okay. But do it with your eyes open.