Jerry Brown’s deficit teeter-totter game

May 23, 2012

By Wayne Lusvardi

Imagine a teeter-totter with a chubby boy on one end and a thin boy on the other.  The teeter-totter can be balanced either by two chubby boys or two thin boys.  It can be balanced heavy or balanced light — either way will work.

Under Proposition 58, California is required to balance its budget.  California Gov. Jerry Brown wants you to believe that the California budget needs to be balanced heavy or high. That is apparently how he is coming up with his $16 billion state budget deficit. It is not a lie to say the budget needs $16 billion to be balanced — however, it is possible that the budget could be balanced without the $16 billion.

Even the State Legislative Analyst now acknowledges there is no need to cut $5.5 billion from the K-12 school budget.  This statement essentially undermines the need for Brown’s $8.5 billion tax increase on the November ballot.

Composition of the General Fund

There are several pots that make up the state budget. Brown wants you to look at the pot of the state operating-budget — called the general fund — shown in Column 1 in the table below.  The general fund has declined only about 10 percent, or a total of $10 billion, since the peak of the Mortgage Bubble in 2007.  The prior reported state budget deficit was estimated to be just about ten billion dollars. But Brown now says the falling tax revenues have made the general fund budget deficit increase to $16 billion.

Sales and income tax receipts have reportedly declined.  But total expenditures including Federal fund transfers have increased 8.1 percent, or a total of $15.84 billion, from 2007 to 2012 (see Column 7 below).

Overall state spending in California is up, even though some components of the budget have decreased.

The “general fund” (Column 1 in table below) can be gamed to the point where it is meaningless.  As writer Alyssia Finley of the Wall Street Journal writes in her article “Will California Ever Learn”:

“For the past several years legislators have been using special funds [fees earmarked for special purposes –- see Column 2 below] to pay for programs that are usually financed by general fund spending.”  This is what the term “fungible” means –- the funds can be applied to several categories.

The best number to look at is Gross Spending Minus Federal Funds (Column 5 below).  Based on that, the state budget is running less than a $1 billion –- or 0.5 percent –- shortfall.  That is without considering President Obama’s and California Attorney General Kamela Harris’s $18 billion foreclosure bailout for California.  Brown is diverting about $410 million of that bailout into the general fund.

Moreover, according to the state Department of Finance website, 85 percent of the $749.5 billion in General Fund Deficiencies – or $635.1 million – are in Medi-Cal.

Public education is not shown as running a deficiency. The apparent reason is that public schools “sell well” with middle-class taxpayers while Medi-Cal can’t be sold to the public as convincingly.

The California budget is teetering — but Its imbalance is caused by chubby-boy spending, not skinny tax receipts.

Historical Budget Expenditures

Fiscal Year	(1)General Fund	(2)Special Funds	(3)Totals	(4)Bond Funds	(5) Budget Totals w/out Federal Funds	(6)Federal Funds	(7)Expenditure Totals Including Federal Funds	(8)Special Fund For Economic Uncertain-ties
2007-08	102.985	26.673	129.659	8.405	138.065	56.211	194.276	1.296
2008-09	90.940	23.843	114.784	7.601	122.386	73.089	195.475	-7.391
2009-10	87.236	23.514	110.750	6.250	117.000	89.088	206.089	-6.112
2010-11	91.549	33.432	124.981	6.000	130.981	84.764	215.745	-3.797
2011-12	86.512	35.587	122.100	13.141	135.241	78.703	213.945	-1.704
2012-13	92.553	39.824	132.377	4.950	137.327	72.784	210.112	1.131
Change in Dollars	-$10.4	+$13.15	+$32.38	-$3,455	$738	+16.573	+$15.84	0.17
Percent Change	Minus10.1%	Plus51.6%	Plus2.1%	Minus41%	Minus0.5%	Plus 29.5%	Plus8.1%	Minus12.7%
Source: California Department of Finance