State agencies and programs are ducking for cover, as they prepare for the Trigger Cuts that the Legislative Analyst Office predicted will be necessary. The depth of the cuts, however, might go deeper than some had anticipated.

In their report of California’s Financial Outlook, the LAO predicted that the entirety of the first tier of cuts and 75% of the second tier will be necessary this year. Despite the automatic cuts, the LAO expects the state to carry a $3 billion deficit into next year. That deficit, combined with the $10 billion that had already been expected, means that the Legislature will once again have to overcome a massive deficit, this year pegged at $13 billion.

The LAO also predicted that economic growth in the state will continue to be sluggish, further adding to out-year deficits through 2017, when the deficit will shrink to $5 billion.
But the challenge of cutting another $5 billion from the deficit after five more years of persistent deficits may prove exceedingly difficult.

As the LAO report concludes:

The Legislature now faces a much smaller budget problem than projected one year ago and the smallest projected out-year deficits since before the 2007-2009 recession. Unfortunately, there are few easy options left for balancing California’s budget. Difficult program reductions already have been passed, and significant one-time budget actions may be more elusive than in prior years. Accordingly, the remaining work of eliminating the state’s persistent, annual deficit will require more difficult cuts in expenditures and/or increases in revenues.

If, however, the Legislature and the Governor were to eliminate the state’s ongoing annual budget deficit this year or over the course of the next few years, the focus of their efforts could finally shift away from short-term budget problems and turn to the serious long-term fiscal issues of the state’s accumulated budgetary obligations and unfunded retirement liabilities.