"It's tough to make predictions, especially about the future," opined Yogi Berra. Actually, it's easy; it's the outcomes that trip people up. Such is the case with the forecast by Gov. Jerry Brown that a $4 billion surge in capital gains tax money would materialize to balance the state's budget.
The fanciful revenue stream was the keystone of the governor's budget, which allowed him to avoid making any deals with anti-tax Republicans and anti-reform Democrats.
Now, with the weak economy and faltering stock market, the inevitable is becoming clear enough even for our legislators to see: The money that wasn't there two months ago when the budget was passed, is still not there today and is not likely to be there later to plug the gaping hole in the state budget.
Even before the market turmoil of the past couple of weeks, chances for a balanced budget were fading fast. Revenues in July, the first month of the fiscal year, were 10 percent below expectations. The fiscal situation is on a path to be even worse in coming months.
That is especially true if the California Supreme Court rules against the deal Brown made to grab $1.7 billion from redevelopment districts as a condition for their survival.
Relying on rosy capital gains tax projections to balance a state budget is particularly poor policy, as the record of their volatility demonstrates.
Back in the late 1990s, capital gains tax revenues rose sharply, then fell just as steeply in 2001 and 2002. Instead of putting some of the "extra" capital gains tax money aside in 1999 and 2000 for a rainy day, the Gray Davis administration and Legislature went on a spending spree that led to huge deficits when the capital gains tax revenues fell short. It also resulted in the successful recall of Davis and the election of Arnold Schwarzenegger.
One would have thought such a recent lesson in bad budgeting would have made an impression of Schwarzenegger, but it did not. He approved unsustainable spending increases when capital gains tax revenues skyrocketed again from 2004 to 2007.
As with Davis, Schwarzenegger found the state in the same fiscal hole when the capital gains tax money train derailed in 2008 and 2009.
Now the Brown administration is making an even worse mistake by relying on just the hopes of a rebounding capital gains tax revenue stream, not an actual short-term increase in tax money.
The consequences of the governor's and Legislature's failure to develop a realistic budget are likely to be painful. That's because the budget has a trigger that will require lawmakers to make more cuts to education, prisons and safety-net programs, if the capital gains and other tax dollars fail to materialize as forecast.
The trigger is set to be pulled in January 2012. That is when more cuts would be made to an already-lean budget. Higher education could lose another $200 million, and K-12 schools might lose up to $1.5 billion and be forced to reduce the academic year by a week.
If redevelopment districts prevail in their legal challenge to Brown's bid to extract $1.7 billion from them, even more cuts will be needed.
By January, or preferably before, our lawmakers and the public will have to face fiscal reality. Must all of the adjustments in the budget come from reductions to state programs, or will there be sufficient support in the Legislature for substantial pension reform and approval of some new revenues?
There needs to be a change in attitudes in the Legislature. There is no place for Republican intransigence on even temporary taxes or the unwillingness of Democrats to make needed pension and budgetary reforms.
Fantasy financing can carry the state only so far, and we are nearing the end of that road.