Broke State Budget Hits Dead End

February 29, 2012 - By admin

FEB. 29, 2012

By KATY GRIMES

In in an effort to avoid a cash-flow problem, State Treasurer Bill Lockyer appeared on Bloomberg news last week talking about the sale of $1 billion in state revenue anticipation notes to Barclay’s and JP Morgan.

“The private placement deal is part of a $3.3 billion plan devised by Controller John Chiang, the state’s Department of Finance, and Lockyer’s office to address a seven-week cash shortfall that the state anticipated, starting around the end of this month,” the Wall Street Journal reported.

Chiang has been warning that the state would soon be facing a cash flow problem, largely because expected “revenues” did not come in.

The state will be doing more internal borrowing and delaying other payments, and plans to issue about $2 billion in general obligation debt.

According to Investorpedia, revenue anticipation notes are, “A short-term debt security issued on the premise that future revenues will be sufficient to meet repayment obligations.”

Robbing From Peter To Pay Paul

California taxpayers will be paying 0.20 percent interest on the notes, which according to Lockyer is a good deal.

But during the Bloomberg interview, Lockyer said that California has a revenue problem, not a spending problem. He added that former GOP governors spent more per every $100 of personal income  than Democratic Gov. Jerry Brown is spending, which Lockyer said is $5.14 out of every $100.

According to state finance experts, the interest rate is a good deal.

But the fact that California had $5 billion in phantom income in the 2011-12 budget was not good. Many are critical that top officials and politicians can’t or won’t give accurate revenue projections. How do you think that sits with the  the bondholders, who, in essence, are the state’s bankers?

According to a Capitol staffer who asked to remain anonymous, it means the majority-vote budget, crafted without bi-partisan support or Republican input, is bogus, and cannot be relied upon. “It is nothing more than a pie-in-the-eye spending plan, resulting with California deeper in debt,” the staffer explained.

The majority-vote budget is based largely on the hope of $4 billion more in projected tax revenues.

However, evidence of this problem is the state’s cash-flow shortage in a year when we actually took in $8 billion more than was originally projected in January 2011.

For a deeper explanation, I asked a state finance expert, who also asked for anonymity. The details are very interesting.

Shifting, Realigning, Renaming

As general fund resources dwindled during the recession, the state relied more and more on other funding sources to maintain programmatic spending.  On the books, it looks like general fund spending declined, when in reality, general fund programs were simply funded by fee-supported special funds, and federal funds.

Many think that Gov. Jerry Brown’s realignment proposal was reform, but the finance expert said instead it is an example “of the state simply redefining $5.6 billion in former general fund spending as no longer being ‘general fund.’ No programs have been reduced or eliminated through this process.  It simply reduces spending on the state’s main ledger, the general fund ledger.”

Because of the budget manipulations, general fund spending has declined from a high of $103 billion in 2007-08, to $92.1 billion in 2011-12.  “However, total spending grew from $194.3 billion in 2007-08 to $213.9 billion. That’s $19.6 billion more during the same time frame,” the finance expert explained.

So, while Lockyer is correct that general fund spending is down to $5.14 per $100 of income, total state spending per $100 of personal income has dramatically increased from 2008-09, when it was  $7.60 per $100 of personal income, to $8.04 per $100 of income in 2011-12.

And if federal funds are included, which has been heavily used to temporarily offset General Fund spending, especially within health programs, the situation is even more dire.

Increasing Spending, Decreasing Revenue

State lawmakers and financial officers knew what they were doing when they made these manipulations, couched in terms of “general fund decreases,” designed to cover up the increasing spending and decreasing revenue.

This is nothing more than if you borrowed a large amount of money from your rich uncle when you don’t have the income to support it, or any way to pay it back. And family members always know that a loan is really a gift.

It’s a thinly disguised plan where state officials are hoping that revenues will improve before the state finances totally melt down into bankruptcy. We’ve kicked the can so far down the road, that we are about to hit a dead-end alley.

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Comments(11)
  1. Beelzebub says:

    Did Bill Lockyer talk about the latest scandal re: his 4th wife Nadia on Bloomberg??? :D Why don’t we get a CalWatchDog report on that? Lockyer can’t even manage his personal life. How the hell can he manage the public treasure on behalf of 38 million people? Lockyer is a classic example of dysfunction. No wonder our State is so screwed up with Lockyer holding the purse strings!!!

    This fat tub of lard is completely out of touch with reality claiming that CA has a revenue problem but not a spending problem. We are one of the highest taxed states in the nation and still can’t balance a damn budget. They constantly LIE to us by understating the expenses and overstating the revenue.

    YOU CANNOT SOLVE A DEBT CRISIS BY PILING ON MORE DEBT!!! IT IS A ROAD TO DISASTER!!!

  2. Rex The Wonder Dog! says:

    This is nothing new, every gov in the last 25 years has pulled this stunt-over estimate taxes/revenue and underestimate expenses. Happens EVERY year.

    If this were the private sector and they did this to share holders they would be in prison.

  3. Hondo says:

    Bless you Katy for trying to explain to us the Linsanely (oops, I said a racist thing about Jeramey Lin) complicated shell game which is Kalifornias budget. It’s like me trying to explain derivatives to my mom when I’m not really sure what they are ( I believe they are simply mathematical equations that are traded as financial instruments. Am I wrong?).
    The easier way to explain how Kali can’t balance their budget is to look at Stockton who, in the 90s, gave lifetime free health care to employees who only worked a month. No matter how many times I read that I still can’t (nor can my mother)fathom how a city can promise such things.
    Thanx for trying Katy, I still can’t figure it out.
    Hondo

  4. CalWatchdog says:

    Sorry Hondo – I thought that if I could understand the state flim flam, I could make anyone see it.

    - Katy

  5. lee timmerman says:

    This is a surprise to some? Did anyone listen to John and Ken on KFI radio? They explained this, with the over estimated revenues and moving the spending around, about 48 hours after these lying, lowlife, bums passed that bogus budget. This state and country are in real trouble, and WE THE PEOPLE, let it happen. This is not going to change unless WE stand and take action. We know what needs to be done, but are too afraid to act. We are near the final push, we either push back, or we will be shoved over the cliff. I pray every day, asking for our leaders to learn to do the right thing. I pray if that is not to be, then I ask for wisdom to do the right thing. I fear we have seen the best this country has to offer, unless ??????

  6. Rex The Wonder Dog! says:

    WE THE PEOPLE, let it happen. This is not going to change unless WE stand and take action. We know what needs to be done, but are too afraid to act

    Sorry, but WE have been doing all WE can, and WE are not afraid to act, $$$$ runs this country, w/o it you’re a nobody with no power.

  7. Beelzebub says:

    “This is not going to change unless WE stand and take action. We know what needs to be done, but are too afraid to act. We are near the final push, we either push back, or we will be shoved over the cliff”

    The Occupy movement already tried that. Look what happened to them. Sprayed in the face with mace and transported off to the slammer in cattle cars. Thousands of them. The problem is that you have lapdogs in the media who claim to be against the status quo who condemned the Occupy movement and in turn gave their defacto support to the government and corrupted big business. When the truth is not exposed to the general public via the media stupidity runs rampant. In general, the people and the voters are dumber than bags of dried turds. The information has to be dissected and hand fed to them. 70% only know what they see on the 6 o’clock news – and most of that are bald faced lies. We Americans have lost our spirit. Your average American is a slave to the oligarchs without even understanding what the f is going on around them.

  8. queeg says:

    You live in the worst if times and pine for the best of times!

    Grow up…take care of your own……

    Utopia is costly so bend over and pay!!!

  9. Cheerful Cynic says:

    Everything Katy wrote makes sense; I/we have known this for decades. And for decades, we have heard how it [AKA budget scams] can’t go on like this much longer. That this city, that county, those states, the feds, etc., would crash and burn. Any day now. You betcha. It makes sense thinking that – if WE ran our financial/etc. lives this way, we definitely would crash and burn. And yet the monsters simply do not die. Every year, Lucy grabs the football at the last second. Somehow reality, economic gravity, don’t apply. Don’t get the wrong idea – I totally HATE the financial way government runs. I want all this to change as much as millions and hopefully most Americans want. I just wonder how all these economic mismanagers prevent the economic meteor from hitting the system they built.

  10. [...] can read the rest of Katy’s insightful article HERE. But here are some choice quotes: According to a Capitol staffer who asked to remain anonymous, it [...]

  11. Andy says:

    This would be funny if it weren’t so sad.

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