$544 million added to state budget gap
Greg Lucas, Sacramento Bureau Chief
Friday, October 31, 2003
©2003 San Francisco Chronicle | Feedback
Sacramento -- California's budget mess
will grow by $544 million because of cost overruns in the state's
prison system, $90 million of the problem stemming from pay and benefit
increases Gov. Gray Davis gave to state prison guards.
Adding this year's projected prison spending
deficit to the state's existing cash shortfall means Gov.-elect Arnold
Schwarzenegger must close a gap of at least $8.5 billion. The shortfall
could reach nearly $24 billion, depending on court rulings and whether
Schwarzenegger delivers on one of his key campaign pledges. "If
these numbers turn out to be true, then the big and ugly pile of fiscal
messes that the governor-elect is going to have to clean up just got
bigger and uglier by half a billion dollars,'' said H.D. Palmer, a
Although California's network of 33 prisons
has operated in the red since 1997, its current deficiency is nearly
eight times bigger than last year's. "We've had deficiencies
for a number of years now,'' said Terry Thornton, a spokeswoman for
the Department of Corrections. "A lot of things are mandated
but not funded. A lot of costs keep rising. The budget doesn't cover
Thornton would not release the department's
projected deficit, saying it was still an estimate. But legislative
and Davis administration sources said the shortfall is $544 million.
The shortfall is composed mainly
of $170 million in higher pension payments, $50 million in overtime
costs and $140 million in efficiencies ordered by the Legislature
that didn't save as much as lawmakers predicted.
A lucrative contract reached with the politically
connected California Correctional Peace Officers Association in February
2002 is responsible for an additional $90 million. That
contract boosts the top salary of a guard with seven years experience
from $54,888 to more than $73,000.
A July 2002 audit predicted the contract
would cost the state at least $518 million by 2007. The Department
of Corrections pegs the annual costs at $300 million. After
the contract was signed, the prison guard union contributed nearly
$1.1 million to Davis' successful re-election campaign. The first
check -- for $251,000 -- was written one month after the contract
Davis insists there is no connection between
the two actions. The cost of the
contract was not included in the budget because the spending plan
was premised on saving $185 million by renegotiating contracts with
various state employee groups. The prison guard contract has yet to
be re- opened.
Like other state bureaucracies, the prison
system was asked to help reduce the budget shortfall by finding ways
to cut operating costs by 16 percent, or more than $800 million. The
department's plan included some staff reductions and contracting out
various functions, like package deliveries to inmates.
Davis has yet to act on the proposal. Although
the prison system's operating deficit darkens the state's already
bleak fiscal picture, it's small potatoes compared to the potential
effect of two lawsuits challenging debt the state wants to issue to
erase $12. 6 billion of the $38 billion shortfall it had last year.
A $1.9 billion bond to meet the state's
pension obligations has already been declared unconstitutional by
a court. The state is appealing the ruling.
Another lawsuit is pending against the
$10.7 billion deficit reduction bond which was central to legislative
approval of the budget signed by Davis on August 2. The
new GOP governor could try to settle those lawsuits and go forward
with those bonds or repackage the debt as general obligation bonds.
General obligation bonds require
voter approval, which is always iffy and makes investment banks skittish.
During his campaign, Schwarzenegger repeatedly
pledged to reduce the increase in vehicle license fees that accompanied
passage of the budget. Doing so will cost the state $4.2 billion in
revenue. He also promises to find
money to replace the lost fee revenue, which is earmarked for cities
"I can guarantee we will not take
money away from them,'' Schwarzenegger said on Oct. 16. "They
need the money. I am a strong believer in local government. They should
have enough funding and I will make sure of that.'' Nor
is it likely the state will collect $680 million from Indian tribes
that operate casinos by renegotiating their gambling compacts.
On the plus side, the state netted $262
million more than it thought from the sale of its rights to money
from a settlement with tobacco companies. And,
through Oct. 1, tax revenue is more than $500 million above state
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