State may face $29-43 billion budget deficit in 2020

budget financeIn Gov. Jerry Brown’s State of the State Address last week, he noted that California’s budget has repeatedly failed to prepare for recession, resulting in “painful and unplanned-for cuts” to schools, child care, courts, social services and other programs. He added, “I don’t want to make those mistakes again.”

But the governor’s proposed $170.7 billion budget ($122.6 billion general fund) for the 2016-17 fiscal year would lead to repeating that mistake when the next recession hits.

Revenues will plunge $55 billion over three years if an average recession hits next year according to the budget summary. That would result in a $29 billion budget deficit in 2020 based on Brown’s current spending proposal, which includes $4 billion in one-time expenditures. If the Legislature instead spends that $4 billion on new or ongoing programs, the deficit would balloon to $43 billion – larger than occurred during the Great Recession.

Recession Expected

California is in the seventh year of economic expansion. That makes it two years overdue for a recession, which has occurred every five years on average, according to Keely Bosler, chief deputy director of the California Department of Finance.

“While there is significant uncertainty in forecasts, there is one thing that is quite certain: and that is history,” Bosler told the Senate Budget and Fiscal Review Committee Jan. 19. “It’s this boom-and-bust cycle that this budget really aims to avoid going forward.” But she acknowledged that “the budget in the state of California does remain precariously balanced over the long term.”

Her cautionary words were echoed by committee Vice Chairman Sen. Jim Nielsen, R-Tehama.

“We must keep in mind that though times are a little bit better, some parts of our economy have not improved,” he said. “And therefore we must exercise constraint and not get overly ambitious. And that will be what governs our progress in the budget. Let’s not get overly ambitious, and let’s not let government get out of control.”

Examine the Department of Finance 2016 Budget Slides here

But Democratic legislators are eager to spend some of the budget surplus on ongoing social programs, particularly for the developmentally disabled, instead of socking it away in the state’s rainy day fund – despite the likelihood that doing so could once again bust the budget.

“It shouldn’t surprise any of us that a recession is at hand. The question is when, not if,” said committee Chairman Sen. Mark Leno, D-San Francisco. “At the same time, an additional $2 billion set aside in the rainy day fund above and beyond what voters told us they’d like to see in it – that I think will be at least part of the playing field of our debate.

“What is appropriate for continuing payment of debt and for reserves, at the same time recognizing that so many Californians who have been hurt at the time of the recession have not seen much recovery or reinvestment in the programs for which they rely for their quality of life?” Sen. Leno asked.

Rainy Day Fund

Proposition 2, passed in 2014, requires that $2.6 billion in this year’s budget be placed in the rainy day fund. Brown has proposed adding an extra $2 billion to the fund. That would bring the total to $8 billion (with previous funding), equating to two-thirds of the constitutional target of 10 percent of general fund revenues, according to Bosler.

But legislative analyst Mac Taylor warned the committee that, while it’s good to beef up state reserves, the Legislature would be unnecessarily tying its hands by going along with Brown’s extra $2 billion in the rainy day fund, which is known formally as the Budget Stabilization Account.

“We would caution you not to put extra money into the BSA,” Taylor said. “Once you put it in the BSA, it’s governed by the rules in the BSA. You can only take out half the monies, if you have a downturn, in the BSA. You might imagine a situation when you might want to take out more in the first year.”

Also up for grabs by the Legislature for whatever purpose it chooses is $1.1 billion from a tax on managed care organizations, an expenditure that Brown left unspecified, according to Taylor. In addition, he told the lawmakers that they could decide to siphon off some or all of the $2.5 billion Brown has proposed to spend on infrastructure, including $1.5 billion for state facilities.

Infrastructure Spending

“When it comes to one-time spending, the governor has focused on infrastructure,” said Taylor. “We think that’s a very positive thing. But keep in mind you have other one-time things that you can spend on. We have very high-cost pension and health retiree liabilities that are accruing costs at 7½ percent a year. So you may want to make additional payments to help fund those and pay those liabilities off. There’s no right choice.”

If the lawmakers do decide to spend the money on infrastructure, they should exercise more control on how it’s spent, instead of leaving it to the administration, Taylor said.

“You don’t want to lose control,” he said. “I think you’ve already lost way too much authority for capital outlay projects. You have given it to both university systems and the administration. Stop doing that. I think you should be exerting a lot more control over capital outlay projects.”

But Leno was more concerned about providing enough “human infrastructure” to help the state’s neediest residents.

Social Services Budgeting

“What I’m hearing is regarding developmentally disabled services that housing units are being lost, facilities are being closed,” Leno said. “Employees at the community-based organizations that supply services are leaving because the employees can find much better jobs than the $13-$14 per hour that some are being paid after 20, 25 years of service. What happens to that infrastructure?”

Taylor responded that there’s been a large growth in spending on the developmentally disabled due to the large increases in caseload. “But you can have just about every program and area of the budget come and tell you that they need a lot more,” he said.

Spending on regional centers for the developmentally disabled has grown by 24 percent in recent years, according to Bosler. “This is well beyond caseload and inflation,” she said. Contributing to the higher costs is California’s aging population, which requires more services and support, along with the rise in autism.

But Leno wasn’t satisfied, saying that the cuts made to social services during the Great Recession have yet to be fully restored.

“Do we want to suggest that even in these boom times that this is our new normal?” he asked. “Or do we have a goal of getting back to where we were at least in adjusted dollars to the 2008 level at some point? If not now, then the question is when. It certainly won’t happen during the next downturn, and quite likely we will have to make additional cuts. We continue to create a new normal level funding which is ever, ever lower.”

Power Over the Budget

Nielsen called the budgeting process itself into question, asserting that it gives too much power over spending to the governor.

“We’ve abdicated our authority over the budget,” he said. “I believe that we are almost making the Legislature irrelevant. Maybe we go through the exercise and pound our chest and try to think we’re important. And this has been a steady erosion over a long period of time.”

Taylor responded that budgetary authority is hard to get back after being given away. He cited the state’s ballot measures as contributing to the problem.

“Almost every initiative that has increased a tax in the last 20 years has dedicated the funds for particular purposes,” he said. “From a budgeting perspective, that’s just a terrible development. No matter how well meaning or how well purposed they may have been in the first year that that measure was passed, that’s not what budgeting is about. It’s about changing priorities, as you know, and being able to make decisions.”

Legislative budget committees plan to hold numerous hearings in the coming months to gain more insight into and provide input on the budget before the governor’s planned budget revision with updated revenue and expenditure figures in May.

37 comments

Write a comment
  1. Dude
    Dude 26 January, 2016, 08:37

    Say no to Moonbeam digging further into our pockets. He’s got his hand crammed so far into our pockets he could tie our shoes.

    Reply this comment
  2. Ted, Dear Leader of CWD
    Ted, Dear Leader of CWD 26 January, 2016, 09:02

    I support this Gov as millions of Californians do !!

    Reply this comment
  3. Ulysses Uhaul
    Ulysses Uhaul 26 January, 2016, 09:40

    yawn.

    Reply this comment
  4. JimmyDeeOC
    JimmyDeeOC 26 January, 2016, 09:46

    It could be worse. It could be Mark Leno cramming his hands so far into our pockets he could…………

    Ahhhhhhh……We better not go there……….

    lol

    Reply this comment
    • ricky65
      ricky65 27 January, 2016, 08:24

      Actually with Moonie and the D-Rats fleecing us Cali taxpayers so bad, we’re so poor we had to cut the bottoms out of our kids pockets so they would have something to play with.

      Reply this comment
  5. Ron
    Ron 26 January, 2016, 12:54

    To make matters worse, transparency about the pensions that are drowning California and its cities, are about to be exposed to the public. Without very much fanfare, the proverbial one-ton Government Accounting Standards Board (GASB) gorilla has entered the room.

    As the result of years of discussions over how best to account for the growing unfunded liabilities owed by government pensions systems, municipalities for the first time ever must include the unfunded actuarial accrued liability of their defined-benefit pension plans in their annual financial reports.

    Fifty-seven other counties soon will be reporting their audited financial statements, and we can expect the same results on their balance sheets for the massive pension liabilities.

    Reply this comment
    • Ted
      Ted 26 January, 2016, 14:59

      Oh NooooooooooooooooooooooThe Sky Is Falling !!!!!!!!!!!!!!!!!!!

      Reply this comment
    • NTHEOC
      NTHEOC 26 January, 2016, 17:24

      As the result of years of discussions over how best to account for the growing unfunded liabilities owed by government pensions systems
      ——————————–
      LOL!!!!!! No such thing DOOMER. I love it, ohhhhhh the unfounded liability, no really, the sky is falling, really it is, no really just wait, really it’s happening. Hahaha.

      Reply this comment
    • NTHEOC
      NTHEOC 26 January, 2016, 17:30

      transparency about the pensions that are drowning California and its cities, are about to be exposed to the public.
      ——————————–
      Oh little moron DOOMER! Again, we have been down this road already a thousand times, get current! California is not drowning and very ew cities are in financial stress. The pension blame game has been debunked time and time again with pensions winning by fact and proof! Get with the times Doomer.

      Reply this comment
      • Rex the Wonder Dog!
        Rex the Wonder Dog! 26 January, 2016, 18:38

        The pension scam game has been going on since time began with pensions winning by scamming the poor and middle class! Get with the times Public Klown.”
        Damn, nailed it AGAIN brother!

        Reply this comment
        • Ted---Mentor to the Doomera
          Ted---Mentor to the Doomera 27 January, 2016, 14:49

          NTHEOC SLAMMA JAMMA again for the umpteenth time! Zzzzzzzzzzzzzzzzzzzzzzzzzzzzz Doomera— you girls need to find a new crisis of doom— aint no body buying your tired old ones….yaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaawm…..

          Reply this comment
          • Rex the Wonder Dog!
            Rex the Wonder Dog! 27 January, 2016, 17:03

            SLAMMA JAMMA

            What are you a 3 year old 😉

          • Ted
            Ted 28 January, 2016, 14:55

            Slamma Jamma Ding Dong little buddy! I live in your head!

            HURRY POST !!!

  6. dc1
    dc1 26 January, 2016, 16:41

    The governor’s budget includes yet another massive tax increase, this time for infrastructure. While I don’t object to infrastructure spending, it needs to be done without raising taxes yet again. Don’t forget, we already pay by far the highest gas prices in the lower 48, along with the highest income taxes by far. This budget overspends, and with the economy already slowing and capital gains clearly slowing, the budget is trouble. What didn’t happen was any meaningful reform to entitlement spending, and that will drag us down over time.

    Reply this comment
    • NTHEOC
      NTHEOC 27 January, 2016, 16:05

      dc1,
      Don’t forget, we already pay by far the highest gas prices in the lower 48, along with the highest income taxes by far.
      ————————————–
      highest gas prices,blah,blah! We also had an air pollution problem we had to deal with so the gas products that are needed during the year change and that cost more. When is the last time you heard Stage 1 smog alert? You see DOOMER, it is well worth it. Also, I still see large SUVs and TRUCKS are setting record sales along with all new vehicles. Guess people aren’t that worried about gas prices. As for highest income tax, well we also have the highest income earners in this State and they should pay even more! Lots of millionaires in Cali buddy.

      Reply this comment
  7. NTHEOC
    NTHEOC 26 January, 2016, 17:36

    The governor’s budget includes yet another massive tax increase,
    ———————————–
    And another year of Corporate RECORD PROFITS, The wealthy getting wealthier, spending up, a strong and robust California economy, and the people of California supporting our Governor. You gotta pay to live in the golden state buddy!!

    Reply this comment
    • Rex the Wonder Dog!
      Rex the Wonder Dog! 26 January, 2016, 18:36

      “The GED Wonders in Government getting wealthier, spending up by Public Unions, a strong and robust California Public Sector leaching off the poor, middle class and everyone else.”
      Well said NTHEOC
      🙂

      Reply this comment
  8. SmartMike
    SmartMike 26 January, 2016, 17:54

    The booming stock market of last year and this, is a sight to behold, and the declining poverty rate in Cal. show the effects of a great economic boom in Cal. shared by all.
    Being able to fund debt in the future is overrated. It does not matter.

    Reply this comment
    • Ted. Mentor to the doomed....
      Ted. Mentor to the doomed.... 27 January, 2016, 06:32

      Well said SmartMike
      buying into to tea bag ignorance is not it’s own reward– vis—-the GOP is almost dead after 20 years of hard right dim witted nonsense….

      …and so it goes….

      Reply this comment
  9. Ted Steal, Head Stooge
    Ted Steal, Head Stooge 26 January, 2016, 18:33

    “State may face $29-43 billion budget deficit in 2020”

    No problemo…because in CA we have “money trees”, where $$$ just sprouts off of branches, waiting to be plucked 🙂

    And if the money tree doesn’t cure all our problems JUST RAISE TAXES!!!!!

    Reply this comment
  10. Spurwing Plover
    Spurwing Plover 27 January, 2016, 08:21

    All the demacrats do is raise taxes on everyone so these tax and spend demac-RATS will always have other peoples(Taxpaers)Money to spend on pork projects like their super speed train or for trips to disneyland for their families

    Reply this comment
  11. NTHEOC
    NTHEOC 27 January, 2016, 15:55

    Spurwing Plover
    All the demacrats do is raise taxes on everyone so these tax and spend demac-RATS will always have other peoples(Taxpaers)Money
    ———————————————-
    Plover, the citizens of California vote in favor of every major tax initiative put to ballot! Obviously the people know you have to pay a little more to live in the Golden State!!

    Reply this comment
  12. Ulysses Uhaul
    Ulysses Uhaul 27 January, 2016, 18:45

    For some reason the Graboids are very active……fear this fear that…..so hard to watch…..depressing

    Teddy. Soothe them already

    Reply this comment
  13. venlocont
    venlocont 6 February, 2016, 16:00

    That would result in a $29 billion budget deficit in 2020 based on Brown’s current spending proposal, which includes $4 billion in one-time expenditures. Where such information?

    Reply this comment
  14. michael
    michael 8 February, 2016, 08:27

    Dont worry because the recession has arrived. Its going to wash away dotcom bubble 2.0 and we will not have to wait until the endof 2016 to see a deficit.

    Reply this comment

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