Assembly hearings expose Brown budget gaps

May 17, 2012

By Katy Grimes

Like a woman with a shopping addiction, California politicians are going to bankrupt the Golden State. California has a $16 billion deficit, a $4.6 billion budget spending increase since January, a credit rating which will probably be lowered and a big fat $10 billion debt owed to the K-14 public schools.

It doesn’t look good. Someone needs to cut up the state’s credit cards and put the Legislature on a Weight Watchers plan for big spenders.

May Budget Revision

With nothing but bad news to deliver, on Monday Gov. Jerry Brown gave his May Budget Revision. By Tuesday, the Assembly Budget Committee was dissecting the budget with the help of Legislative Analyst Mac Taylor and the Department of Finance’s Michael Cohen.

And while the budget talk was wonky and dry, one issue kept resurfacing: On top of our $16 billion state debt, the State of California also owes $10 billion to its K-14 public schools.

‘Deferrals’

The Legislature has avoided making actual cuts to programs by using education funding every year to shore up the gaps. But the money taken from education is still owed to the K-14 schools. Robbing Peter to pay Paul, this “deferral” has accumulated to $10 billion. The law states that it must be paid back.

The Legislative Analyst’s Office has warned about the ongoing deferral to education as the state has increasingly relied on education funding to pretend the budget is balanced and avoid unpopular cuts to programs.

But when the Legislature defers funding to schools in order to keep the money for other state programs, it also has to approve additional borrowing.

That’s like paying only the minimum on your MasterCard, and then opening a new credit card for additional spending.

Assemblyman Brian Nestande, R-Palm Desert, took Cohen and Taylor to task on Tuesday after both indicated the need for Gov. Brown’s tax initiative to pass in order to meet the spending in his budget.

Brown’s tax increase initiative would increase the state income tax on those making more than $250,000, for five years, and raise sales and use tax by 1/2-cent for four years, and allocate 89 percent of the tax revenues to K-12 schools, and 11 percent to community colleges.

“What are you doing differently with the budget this time?” Nestande asked Cohen. “You were way off last time.”

Cohen explained that the finance department was taking a conservative approach with ongoing litigation, Medi-Cal payments and “using our best judgment.”

“But revenue projections–how were you so far off?” Nestande asked. “What are you doing now?”

Cohen said that. when they prepared the January budget, they still didn’t have all of the spending data needed from the previous June.

“It doesn’t sound like you are learning from last year,” Nestande said.

“You keep hoping the economy will bail you out,” Assemblywoman Diane Harkey, R-Dana Point, added. “82 percent of the general fund goes to Health and Human Services and education.”

But the budget talks with Cohen and Taylor were rather unusual. In the past, they often have disagreed about budget issues. On Tuesday, they appeared to be working for the same department.

Spend, spend, spend

Parroting Brown during the May Revision press conference, Assemblyman Bob Blumenfield, D-Los Angeles, the committee chairman, began the meeting on Tuesday by speaking of the importance of working with the governor to balance the budget. Fortunately, the committee vice chairman, Assemblyman Jim Nielsen, R-Gerber, ended the rhetoric. “I rather doubt what we can agree on is funding what’s broken,” Nielsen said about the budget revision. “We cannot fix the budget without pension reform.”

There was no pension reform in Brown’s budget. In fact, there were no spending reforms at all.

Cohen explained  the wonky financial issues and procedures to the committee, and how the finance department didn’t have enough data with the last budget. They overshot revenue estimates in January, ultimately having to adjust revenues down again with the May Budget Revision.

However, Cohen said that even with revenues down, Proposition 98 costs–school funding–were up by $2.4 billion.

Ironically, it was only in January during budget talks that Brown said he wanted to pay down the Proposition 98 deferral debt by $2.4 billion.

In the February, LAO Proposition 98 analysis said, “Paying Down Deferrals Makes Sense. The largest component of the Governor’s basic plan is to pay down $2.4 billion in K-14 payment deferrals. If the state has additional Proposition 98 resources to spend in 2012-13, we think paying down these deferrals is reasonable. This would not only help reduce the significant cash management challenges now facing districts but also would be less disruptive than programmatic cuts were the tax measure to fail.”

Corporate profits ‘up’

Cohen insisted that “corporate profits are way up” in California, based on corporations claiming state tax credits.

And Cohen said that, before Brown does any pension reform, he wants a balanced budget.

This is where Nestande jumped in. He said, “We have a legal mechanism in this budget to pay back $10 billion of deferrals. Do we have a repayment plan?”

Cohen said that, without passage of Gov. Brown’s tax initiative, the finance department will continue to shift funds.

“If the Governor’s tax measure is not approved by voters, the Governor proposes $5.4 billion in midyear trigger cuts,” the LAO reported in February. “Of this amount, $4.8 billion, or 90 percent, would come from Proposition 98 cuts. To achieve these savings, the Governor begins funding K-14 debt service payments within Proposition 98. We have serious policy concerns with this proposal. Because debt service payments are volatile, the proposal would result in notably greater volatility for education programs. Absent a clear, compelling policy rationale, we question why the state would want to change its longstanding facility funding practices, particularly when the change results in a significant cut in programmatic funding.

“The Governor’s back-up plan also excludes the 2011-realignment related sales tax revenue from the Proposition 98 calculations. We believe such treatment is risky. If the realignment revenues were to count toward the guarantee, the guarantee would increase roughly by $1.7 billion. As a result, the Governor’s back-up plan would need to be modified—either by suspending the guarantee or by funding the higher guarantee and implementing $1.7 billion in reductions in other areas of the budget.”

This hardly sounds like a sound budget plan.

Nestande continued questioning Cohen and Taylor about the Prop 98 fund shifts, and asked if the Legislature could change the law in order to not have to pay back the money.

“Yes,” said Cohen. “Deferrals are a spending choice.”

Cohen explained that if Proposition 98 was suspended by the Legislature, lawmakers could fund K-14 schools at any level it chose. But the $10 billion would still be owed.

“I don’t think you want to go there,” added Taylor.

Nestande pointed out that the state has not paid back any of the deferred education funding. “We don’t pay it, we defer it,” he said. “We are playing a shell game with the deferrals, and it’s a sham on schools.”

“The governor has made clear that he wants to honor the deferals,” said Assemblyman Sandre Swanson, D-Alameda. “The process needs to have credibility. We can’t defer and then break the promise.”

“But we don’t have $10 billion,” said Nestande.

The system is broken

“Nobody can understand what’s going on,” Nestande said after the hearing. “The system is broken.”

“If we want to short education funding, then we should suspend Proposition 98,” he added. “We are just digging a bigger hole.”

Nestande explained that, with no end game to the money shifts and budget games, the Legislature will be forced to shorten the school year. “With the wealth of innovation in this state, what an embarrassment. We once led the country. Now we are leading it to a grinding halt.”

29 comments

Write a comment
  1. Ted Steele-- Poodle slayer
    Ted Steele-- Poodle slayer 17 May, 2012, 09:34

    I am voting for the temp tax hike– but this article is right on re spending— time to cut the credit cards up—-

    Reply this comment
  2. Beelzebub
    Beelzebub 17 May, 2012, 09:49

    I look at Sactown legislators like a bunch of falling down drunks who can’t wean themselves off the bottle. You don’t cure a drunk through therapy or holding his hand while telling him that he is misunderstood and a ‘victim’ of other’s perceptions. Nope. You FORCE him to take an ababuse pill every morning so that whenever he takes a drink he pukes his guts out.

    Spending other people’s money in excess is no different. The ultimate anabuse there is, of course, kicking their butts out of office. Another anabuse pill is to REFUSE to vote for new tax measures (which just enables the spender or ie. the drunk) so that the added money (booze) disappears so there’s nothing to spend or ie. drink. Another anabuse pill is a part-time legislature so these clowns don’t have all the time on their hands to dream up news ways to spend the revenue or ie. drink the booze. Another mild anabuse pill is to shame the ones who wantonly spend our money or ie. drink the booze, with total disregard for those who they hurt.

    There are all good ideas of how to cut away at the problem. The California voter needs to get so fed up and sick and tired with the spending addict or ie. drunk, that he does all of the above.

    Reply this comment
  3. Edward Rasen
    Edward Rasen 17 May, 2012, 10:01

    Jerry Brown and Assemblyman Bob Blumenthal (D-Los Angeles) don’t have a plan for fixing the deficit. Their alleged plan is simply to yell “wolf” and hope to scare voters to approve new taxes as if that will solve the problems like wasting billions of dollars on the Bullet Train to Nowhere or subsidizing college tuition for illegal immigrants or using community colleges to teach English to illegal immigrants.

    Reply this comment
  4. Katy Grimes
    Katy Grimes 17 May, 2012, 10:35

    If you think these tax increases are temporary, I have a bridge to sell you. Brown and the Dems are addicted to the fun of spending other people’s money. And they won’t give it up unless forced.

    Katy

    Reply this comment
  5. SkippingDog
    SkippingDog 17 May, 2012, 10:43

    If you want to see permanent increases in the state tax rates, all we need to do is reject the temporary tax increases proposed by Gov. Brown. It’s highly likely that the Democrats will have the necessary 2/3 majority to raise taxes after the November election, so our obstructionist Republicans will finally be fully exiled into the political irrelevancy their policies so richly deserve.

    That should make for some excellent editorial fodder for you, shouldn’t it, Ms. Grimes?

    Reply this comment
  6. Ulysses Uhaul
    Ulysses Uhaul 17 May, 2012, 10:52

    Skippy has a point. Proposition 13 is the golden calf glistening on Perez’s buffet table.

    No forks or Tums will be needed.

    Reply this comment
  7. CalWatchdog
    CalWatchdog Author 17 May, 2012, 11:19

    Perhaps the Dems will have a two-thrids majority after November, but then again, they already own the budget and the mess California is in.

    They already block all Republican bills, and pass all of theirs – notmsure what will change other than more tax increases, bigger government, increased state spending, more regulations, sneakier, more deceitful budget games…

    Katy

    Reply this comment
  8. SkippingDog
    SkippingDog 17 May, 2012, 12:12

    The biggest change will be that the Republican minority will no longer have the clout to block all of the Democratic bills that involve actually paying for the budget choices we’ve made.

    That’s the kind of change that has traditionally be referred to as responsible governing.

    Reply this comment
  9. SkippingDog
    SkippingDog 17 May, 2012, 12:13

    — “traditionally been” —

    Reply this comment
  10. Beelzebub
    Beelzebub 17 May, 2012, 12:44

    If anybody has any question whatsoever about the failure of the dem party they need look no further than the State of California – the BASTION OF DEMOCRAT RULE. California should be a textbook study unto itself in every college political science textbook in the nation. It should be REQUIRED reading for every college freshman – regardless of academic major.

    Look what the perpetual democrat majority got us in Sactown!!! HAH! Just look at our failed state!!! HAH! The only thing worse than a democrat is a liberal democrat!!! 😀

    Reply this comment
  11. RealityCheck
    RealityCheck 17 May, 2012, 12:58

    Only 7 Republicans voted to end crony capitalism Redevelopment Agency boondoggle. I believe Gaines voted against but Nielson abtained on SB 77.

    Reply this comment
  12. Ulysses Uhaul
    Ulysses Uhaul 17 May, 2012, 13:58

    We assume residents know what a transparent budget would do for California.

    Bad assumption….residents thing a budget is like a diet made to be broken, the second day of sacrifice.

    Reply this comment
  13. Ian Random
    Ian Random 17 May, 2012, 15:12

    Simple raise taxes on the entertainment industry. 🙂

    Reply this comment
  14. Hondo
    Hondo 17 May, 2012, 19:55

    There is no more money left to steal. It’s all gone. Kali already has just about the highest taxes in the country. Without pension reform and creating a better business climate, Kali’s got no chance.
    Not even our Kenyen president can save Kali now.
    Hondo

    Reply this comment
  15. The Ted Steele System
    The Ted Steele System 17 May, 2012, 21:06

    Katy–

    If you’re so smart (and you seem to be), Why don’t you and your republican friends send up a budget from the CWD??? Seriously, I am sure he has heard of you. He has made the request about 5 times now—– I am sure some of your ideas are better than some of his— who knows? it may just help all of us????– The Ted Steele Organization ™.

    Reply this comment
  16. CalWatchdog
    CalWatchdog Author 17 May, 2012, 21:15

    Sorry Ted – not feeling so smart tonight. What is a CWD budget?

    Katy

    Reply this comment
  17. The Ted Steele System
    The Ted Steele System 17 May, 2012, 21:40

    I mean a budget from the Cal Watchdog thingy. You guys could take Brown up on his offer….

    Reply this comment
  18. Beelzebub
    Beelzebub 17 May, 2012, 22:15

    “You guys could take Brown up on his offer…”

    Clown’s “offer” is a disingenuous way to try and shift responsibility. The budget is HIS RESPONSIBILITY – not ours. Clown is the one who misestimated the original budget and afterwards celebrated by saying he put together the first balanced budget for California in years!!! HAH! Clown is a fraud. He couldn’t estimate how many days there are in a week!! HAH! 😀

    Reply this comment
  19. CalWatchdog
    CalWatchdog Author 18 May, 2012, 08:51

    I deleted several posts that were either insulting, or off topic. This post is not about 9/11 or Obama’s background. Please keep your posts civil and on the topic of the post.

    — John Seiler

    Reply this comment
  20. Ted Steele-- Poodle slayer
    Ted Steele-- Poodle slayer 18 May, 2012, 09:08

    Thanks John– I try.

    Reply this comment
  21. Rick Daniells
    Rick Daniells 18 May, 2012, 14:37

    Greece and California
    Incompetents running both governments
    Entitlements from cradle to grave
    Businesses and taxpayers exiting all that is left are the poor and the Hollywood types
    Until all governments realize what their true role is: Police, fire, roads, flood and not schools, welfare, medical and serving the unions nothing will happen

    Reply this comment
  22. Willis
    Willis 20 May, 2012, 07:31

    Californias version of socialism is slowly dyeing.
    The state can only raise taxes (makes the problem worse)
    or cut spending. The real pain is yet to be experienced.
    Further economic downturn in ’13/’14 will bring on cuts
    to expenditures by an additional 25 to 30 percent.

    Seems to me that the guy who started all this mess,
    Jerry Brown, will be present at the end. Justice??

    When will voters wake up??

    Reply this comment
  23. Fred Mangels
    Fred Mangels 20 May, 2012, 08:02

    Beez wrote, “California should be a textbook study unto itself in every college political science textbook in the nation. It should be REQUIRED reading.”

    The problem with that is they’d teach the problem was only because we made it too hard to raise taxes.

    Reply this comment
  24. Fred Mangels
    Fred Mangels 20 May, 2012, 08:04

    Willis wrote, “Seems to me that the guy who started all this mess,
    Jerry Brown,…
    “.

    It’s unfair to blame it on Brown. This started long before his second term.

    Reply this comment
  25. Fred Mangels
    Fred Mangels 20 May, 2012, 08:13

    Ted wrote, “I am voting for the temp tax hike…”.

    I am voting NO on the tax increases, despite believing we can’t cut our way out of this deficit. If I felt the Governor and the Democratic majority really wanted to hunker down, stop spending and get the deficit cleared up, I might well vote for it.

    But they don’t. The Governor is dead set on increasing spending- his unwavering support for High Speed Rail being the best example. If he were to say we simply couldn’t afford HSR, or any new government projects, until we have a sustainable, balanced budget, I might bite on the tax increase. He won’t, so I won’t.

    And let’s not make the mistake that it will be a temporary increase. Once it’s here, it’s here.

    Reply this comment
  26. Beelzebub
    Beelzebub 20 May, 2012, 08:31

    “Seems to me that the guy who started all this mess,
    Jerry Brown, will be present at the end. Justice??”

    Poetic justice. And I hope when he dies that he dies a broken man.

    Reply this comment
  27. Beelzebub
    Beelzebub 20 May, 2012, 08:34

    “It’s unfair to blame it on Brown. This started long before his second term”

    No it’s not. Clown perpetuated a ‘play for pay’ political system that virtually destroyed a vibrant, thriving economy. Clown is directly responsible (along with others) for the mess that we find ourselves in. To deny that is to live in a factually challenged world.

    Reply this comment
  28. The Ted Steele System
    The Ted Steele System 20 May, 2012, 19:35

    Well said— The structural problems did indeed start waaaay before Brown!

    Go to the head of the class!!

    Reply this comment
  29. Beelzebub
    Beelzebub 20 May, 2012, 20:02

    “Well said— The structural problems did indeed start waaaay before Brown!”

    Clown is a walking structural problem. He invented structural problems. No wonder Linda Ronstadt dumped him. My guess is that he had structural problems head to toe! 🙂

    Reply this comment

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