THE CALIFORNIA Journal of Politics & Policy Commentary How to Deal with California’s Budget Problem Tim Gage* The Blue Sky Consulting Group The governor and the legislature face an enormous challenge as state revenues continue to fall precipitously. While the budget could have been better managed over the last decade (for which I bear some responsibility), this revenue decline dwarfs any reasonably sized rainy-day fund that might have been established as a defense against a downturn. So, what to do? The most immediate task, as outlined to the budget conference committee, is to deal with the state’s cash crisis. In order to get the state’s cash flow borrowing to a www.bepress.com/cjpp Volume 1, Issue 2, 2009 manageable level, the legislature needs to make immediate spending reductions. However, they shouldn’t attempt to address the entire budget problem in the next few weeks. Why not? The budget process is fundamentally flawed. We budget on a year-by-year basis. In the midst of budget crises, proposals for program reforms, almost no matter how sensible, that yield out-year savings but don’t help the budget year are routinely tossed aside in favor of short- term fixes. Program reforms that require lead time to realize savings get short shrift. The budget problem presents an opportunity to revamp programs so that critical services can be delivered more effectively and at lower cost. But making these changes *Tim Gage spent over 24 years as a fiscal advisor with both houses of the California Legislature and served as the director of the California Department of Finance. On leaving government, he founded the Blue Sky Consulting Group.