CA Fiscal Insanity: borrowing $21.6 billion to cover cash shortfalls

Insanity is the one word to describe the news that California is planning to borrow $21.6 billion to cover cash shortfalls that might leave the state without enough money to pay its bills. The legislature’s failure to take action on solving the state’s budget deficit is the reason why California is now the leader in fiscal irresponsibility.

But this isn’t just the legislatures fault; the Governor has continued to delay effective budget action and repeatedly kicked this massive problem down the road.  Each day no solution is found increases the amount that needs to be cut or the amount of tax increase.

State Controller John Chiang said that, as of February 28, state spending is running $2.5 billion above budget for eight months of the current fiscal year and revenue is $2.5 billion below forecast. Also in February, the Controller reported a $62.1 billion unfunded liability for retiree health care benefits. That is in addition to the $398 billion unfunded liability for pensions, according to State Budget Solutions.

Meanwhile the Legislature’s budget analyst declared that revenue for the remainder of this fiscal year and all of next is likely to be $6.5 billion short of Governor Jerry Brown’s forecast even with his proposed tax increase and including a $2 billion windfall in taxes from Facebook’s big stock sale.

Gov. Brown in January proposed a budget to close a $9.2 billion deficit, but the nonpartisan Legislative Analyst’s Office has suggested that Brown’s estimates are overly optimistic and that the deficit is likely much higher than that figure.  The Governor’s “balanced budget” relies on a $6 billion tax increase being placed on the fall ballot and approved by voters.

All of this led to the combined current-year cash deficit standing at $21.6 billion.  California ended last fiscal year with a cash deficit of $8.2 billion. Those cash deficits are being covered with $15.2 billion of internal borrowing (temporary loans from special funds) and $6.4 billion of external borrowing.

In January, the California Public Employees Retirement System agreed to allow the state to delay making a $527 million payment until April to cover state employees’ benefits. But this is only a short-term band-aid and come April, money will be owed.

The problems continued when the legislature, rather than adopting a balanced budget, passed legislation in February to let the state borrow $865 million from internal accounts to help the state advert a cash shortfall that might leave the state without enough money to pay its bills.  In addition, the controller has delayed making more than $1 billion in payments to public colleges, counties and health programs for the poor. Meanwhile, state tax collections for this February were $1.2 billion, or 22 percent, below last February’s collections.

The Legislature plans to produce a budget by June 15 that is “balanced” with the assumption that voters approve new taxes, with automatic “triggers” that would slash spending further, particularly school spending, if the tax hikes are not approved by the voters.

The Day of Reckoning is now.  The Governor and lawmakers must stop using gimmicks and take action now to adopt a balanced budget.  State Budget Solutions urges Gov. Brown and all of the legislators to create real budget solutions that are based on outcome and performance-based budget measures.  California can no longer afford to wait for their government to get its head out of the sand and start acting on their behalf.

(Bob Williams, President of State Budget Solutions, is a former state legislator, gubernatorial candidate and auditor with the General Accountability Office. Originally posted on Fox & Hounds.)