Creative fiscal accounting in California…..

I had just posted on the issues involved in calculating fiscal risks.

I come across this very interesting NYT article (HT: Economix) which shows how politicians can add to the risks in fiscal budgets.

It says California manages to reduce its budget deficits without doing anything. No raise in taxes (as Republicans will not agree) and no real cuts in expenditure (as Democrats will not agree).

So how does California do it…Well just assumes the deficit would just reduce (can you believe that!) !!

California lawmakers got their first look Wednesday at a proposal that attempts to end the state’s record-long budget impasse and close a $19 billion deficit, primarily through targeted spending cuts and a large dose of creative accounting.

The deal, reached late last week between Gov. Arnold Schwarzenegger and the four Republican and Democratic leaders of the Assembly and Senate, does not contain new taxes or fees. Instead, it relies on a series of assumptions and accounting maneuvers that in all likelihood will punt many of this year’s budget problems to the next governor.

A joint Senate and Assembly budget committee heard testimony from the state’s tax collectors and Department of Finance during a brief hearing Wednesday. The committee’s chairwoman, Sen. Denise Ducheny, D-San Diego, said much of the budget’s technical language was still being written before budget votes scheduled for Thursday in the full Senate and Assembly.

Wednesday’s meeting gave the first public airing — however brief — of the agreement reached between the Republican governor and top lawmakers. It is filled with assumptions that may underestimate actual income.

For example, it counts on the state receiving $5.3 billion from the federal government, nearly $2 billion more than Schwarzenegger projected in May. Schwarzenegger and the legislative leaders also assume an economic recovery in California that would be robust enough to send $1.4 billion in additional tax revenue to state coffers. The deal also would delay nearly $2 billion in payments to K-12 schools and community colleges until the next fiscal year.

🙂 Interesting throughout.

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