Budgeting and Financial Management: the Deficit of the State of California 2010-11

Budgeting and Financial Management: The Deficit of the State of California 2010-11

PAD 500

Submitted To:

Dr. Joseph McCue

By:

Jorge Munoz

Strayed University

Orlando East Campus

August 20, 2010

Budgeting and Financial Management: The Deficit of the State of California 2010-11

The State of California is facing one of the most critical times dealing with the $19.9 billion deficit. This State is the biggest issuer of municipal debt among U.S. States and has been operating without a spending plan since July 1 of 2010. To address the problem, the Governor’s Budget proposes a combination of spending reductions, alternative funding, fund shifts and additional federal funds to close the budget gap. The Governor is also declaring a fiscal emergency and immediately calling the legislature into a focused special session to prevent the shortfall from growing and to avoid further cuts. The drastic actions to control the spending are important to management the budget crisis, according to Denhardt (2010) “ the budget process has important effects on the economy that must be anticipated when structuring overall patterns of public spending” (p.239).

Budgets express the public policy choices of governments to attend the projects and programs that fulfill the public needs and maintain the function of the government structure. The government decisions in budget and fiscal policy have a direct impact of government taxation and spending on the economy. Keynesian theory highlights the potential of fiscal policy to solve macro problems. The guidelines are simple. Use fiscal stimulus-m stepped- up government spending, tax cuts, and increased transfers- to eliminate unemployment. Use fiscal restraint- less spending, tax hikes, reduced transfers- to keep inflation under control. From this perspective, the federal budget is a key policy lever for...