Gov. Brown's budget largely ignores massive debt

by Katy Grimes | January 10, 2014 10:49 am

[1]SACRAMENTO — Gov. Jerry Brown yesterday released his state budget[2] proposal for fiscal year 2014-15, which begins on July 1, with spending sharply higher than last year, despite promises of fiscal restraint.

The governor’s $155 billion total spending plan increases the general fund spending to $106.8 billion from last year’s $97.7 billion. The budget only partly addressed the $10 billion owed to the federal government for unemployment borrowing,  about $6 billion borrowed internally from other funds, not to mention the estimated $500 billion in unfunded pension debt.

The budget is flush with new cash due to the modest economic recovery, and to the temporary tax increase[3] from the governor's ballot initiative, Proposition 30[4], passed in 2012. This tax increase imposed a 10.3 percent tax rate on taxable income more than $250,000, an 11.3 percent tax rate on taxable income more than $300,000, a 12.3 percent tax rate on taxable income more than $500,000, and a 13.3 percent tax rate on taxable income more than $1 million.

Brown's budget also called for using $250 million in cap-and-trade[5] money from Assembly Bill 32[6], the Global Warming Solutions Act of 2006, to fund the High-Speed Rail project, despite the criticism the project has come under lately, especially from the courts[7]. Brown insisted the High-Speed Rail system, whose long-term cost is at least $68 million, will reduce carbon emissions.

At the press conference, Brown justified cap-and-trade funding the rail, “Cap and trade is a very good source for that … coming from the sources of pollution, to reduce pollution.”

Republican response, and ridicule, was swift to the rail funding idea. State Sen. Andy Vidak, R-Hanford, sent out a response using lyrics from an old song by legendary rock band the Eagles: “Governor Brown, why don't you come to your senses?” 

Vidak meant the proposal could be seen as a desperado attempt to save the project.

'New' budget still ignores debt

Brown also proposed $10 billion in new state spending on schools and community colleges, increasing the spending to more than $45 billion. In addition to the $10 billion going to schools and community colleges, Brown’s budget calls for $1 billion more for universities. Brown indicated he would continue to incentivize the state university systems to encourage graduation in four years.

What’s the carrot? Another $50 million in higher-ed funding.

Medi-Cal, the state's low-income health program, will receive an additional $670 million. Health and Human Services funding will increase to more than $48 billion.

“Wisdom and prudence should be the order of the day,” Brown said several times during the press conference. And he promised to chip away at California’s long-term debt. But Brown said he plans to only repay $11 billion in long-term debt, and would be putting away $1.6 billion in a rainy-day fund.

With the state's overall long-term debt problem chronically ignored, $11 billion is government chump change, and won't really chip away at the massive, growing debt problem.

“We owe $10 billion to the feds alone for unemployment compensation,” said Assemblyman Dan Wagner, in an interview. “$11 billion won't fix the problem, but sounds good in the media.” In Brown’s budgets, the hefty unemployment debt to the federal government is never included in the long-term “Wall of Debt.”

Brown limits what’s included in the Wall of Debt largely to money owed from the 2004 state bonds voters approved, and to money owed to K-12 schools and community colleges. The latter, in effect, is the state “owing” the money to itself.

Wagner said California ought to be working harder to pay the debts from outside of the state, such as the federal unemployment fund debt, which continue to rack up interest and penalties, rather than focusing on paying back funds borrowed from ourselves.

“And the unfunded pension liability is going to kill us,” Wagner added. “California is not back. No way.”

Fiscal restraint through tax increases and salary increases

Brown said he is committed to fiscal constraint. But the Republican minority in the Legislature held otherwise.

“In comparison to the [Democratic-run] Legislature, yes,” Brown has shown more constraint, said Everett Rice, Communications Director to Sen. Mimi Walters, R-Laguna Niguel. “But he also did tax increases, and gave pay increases to state employees. It’s hard to be constrained when you push tax increases and pay raises.”

The debt

Of the significant debt issues, pension and retirement benefits for public employees are unfunded by half a trillion dollars, according to Stanford University[8], and the state has billions of dollars in other outstanding obligations and debts. The California State Teachers Retirement System pension fund is currently underfunded by $80.4 billion, something Brown acknowledged in his budget proposal.

Brown called for “a new funding strategy” to include more from teachers and school districts, and have the state kick in more. But those solutions were not included in the budget numbers.

“The governor’s budget spends more than it should, pays down a pittance of the state’s long-term debt and saves too little for a rainy day,” said Assemblyman Jim Patterson, R-Fresno, in a statement. “It spends $10 billion more than last year; relies heavily on the new taxes that will end soon; and accomplishes little to chip away at California’s … wall of debt. It appears slightly better than some previous years, but it still misses the mark.”

Source URL: https://calwatchdog.com/2014/01/10/gov-browns-budget-largely-ignores-massive-debt/