CA Budget Worse Despite $2 Billion New Revenue

California’s budget picture is sort of like that old Sandy Dennis high-school movie, “Up the Down Staircase.”

Going up: Legislative Analyst Mac Taylor just reported tax receipts jumped $2 billion over projections in the fiscal 2014-15 budget the Legislature passed, and Gov. Jerry Brown signed, last June. And the state’s credit rating was bumped up to A+ by Standard & Poor’s after voters on Nov. 4 passed Proposition 2, which strengthened the state’s rainy-day fund. The last time the bond rating was increased to A+ was in 2006.

Going down: Despite the added revenue, the state has reached a limit on what it can spend, according to a new study by insurance-asset manager Conning and Company, “Municipal Credit Research: State of the States.”

Moreover, for October Conning ranked California 36th among the states on its percentage of Expenditure Burden, defined as a percentage of the burden on general fund revenues for debt, future pensions and Medicaid expenditures. That’s four ranks lower than for April.

And as CalWatchdog.com calculated, California also has the largest Expenditure Burden in terms of absolute dollars, as shown in the following table. (Expenditure Burden is the far-right column.)

States with Highest Expenditure Burden (Fourth Quarter 2014)

 

State Expenditure Burden, percent of general fund Total General Fund Budget 2014-15  (in $billion) Expenditure Burden in Absolute Dollars (in $billion)
Nevada 43.2% $6.6 $2.851
Ohio 36.4% $30.677 $11.17
Illinois 30.3% $65.9 $19.97
California 25.4% $107.987 $27.43
Kentucky 24.7% $5.776 $1.43

Pension burdens

Gov. Brown’s June budget report correctly projected the state’s “Wall of Debt” will be cut from $34.7 to $13.8 billion by the end of fiscal 2014-15 next June 30.  But this picture of the debt omits future unmet pension burdens and Medicaid spending.

Just before the election, Controller John Chiang – on Nov. 4 himself elected as the new state treasurer – released figures on pension debt that confirmed a crisis long raised by pension critics. He warned:

“The unfunded actuarial accrued liability of the state’s pension systems — or the present value of benefits earned to date that are not covered by current plan assets — shows it has steadily risen from $6.33 billion in 2003 to $198.16 billion in 2013.”

That warning was confirmed by Paul Mansour, Conning’s head of muni research. He told Bloomberg, “California is still being held back by relatively high debt and pension levels…. We are more cautious on them than the [bond] rating agencies.”

Bloomberg also reported:

“California has $87 billion of bonds paid from the general fund, more than twice as much as a decade ago, according to data from the state. Voters also approved $7.5 billion for water infrastructure bonds this month [Propositon 2]. Its $2,465 of debt per resident is the third-highest burden among the 10 most-populous U.S. states, according to a report issued last month by Treasurer Bill Lockyer. New York ranks first, with $3,204 per person. The median among all states is $1,054.”

Forecast

There’s another reason why the new $2 billion in revenue the LAO forecast doesn’t much help long-term pension and medical-expenditure burdens. Proposition 98, passed in 1988, mandated about 40 percent of any revenue – including new revenue – must go to public schools.

As the LAO reported:

A $4 billion reserve would mark significant progress for the state, but maintaining such a reserve in 2015-16 would mean little or no new spending commitments outside of Proposition 98, the funding formula for schools and community colleges.”

So of that extra $2 billion, just $1.2 billion of it can be used for other spending, debt reduction or reserves — about 1 percent of an $108 billion general-fund budget.

Moreover, according to the LAO, despite the new revenue, the general-fund’s balance actually has declined due to adjustments, including “a $358 million downward adjustment relating to an allocation of state sales and use tax (SUT) to local governments to correct for past accounting issues. All told, these adjustments result in an entering fund balance of $2.2 billion, or $243 million lower than the budget’s assumptions.”

Bottom line: California’s budget problems are far from over. Every good-news story going up the stairs seems to be met by a bad-news story going down.

This article was originally posted at CalWatchdog.com

Comments

  1. California axiom, if you give Liberal Democrats more money in taxes they will spend it all, plus some and ask for more…. STUPID VOTERS!

    KEEP VOTING FOR DEMOCRATS YOU IDIOTS!!!

  2. There “is” only one problem in this state and nation, the “progressive liberal democrat”. If you haven’t figured that out after 6 years of Obama, Pelosi and Reid, and I can’t even recall how many years of the bulls _ _ t shoveled here in California, there is no hope for you. You are relegated to join the Dodo bird on the extinct list. Of course, it will all be Bush and Cheney’s fault.

    On another note, the Democratic Party is “dead”. The only way the party can survive is by perpetrating “massive lies” to the people and by recruiting new members through entitlement programs or by allowing them to enter the country illegally and granting them immunity from prosecution and then giving them other special privileges. It is “Hasta La Vista” for the Democratic Party. They are doomed when you have to support a man like Obama as your leader and use the tactics they are using to gain support for their agenda. It is only a matter of time now before the fat lady sings for the democrats……………..

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