New law needed to simplify CA budget

Nov. 21, 2012

By Wayne Lusvardi

Every year state Senator Joe Simitan, D-Palo Alto, holds a contest for his constituents to submit ideas for new laws.  Simitan boasts that 18 submittals have been enacted as new laws since 2001.  Well, here’s an “oughta be a law” challenge for Sen. Simitan:

A new law is needed to make state budgeting more clear.

The reason stems from AB 1495, which added Section 35.50 to the budget for fiscal year 2012-13, which began on July 1, 2012. This new section of the budget shifts the method of reporting funds from “cash accounting” to “accrual accounting.”

This is important.

Under cash accounting, revenue and expenses are recorded at the same time.

But under accrual accounting, the reporting of revenues and expenses may occur at a different time.

For example, State Legislative Analyst Mac Taylor’s new forecast of state budget revenue surpluses starting in 2014 is based on counting two years’ worth of revenues from the new taxes in Propositions 30 and 39, then applying the revenues to just one fiscal year.  This distorts the actual budget picture and leads to inflated budget estimates.

Budget Section 35.50 means that the Legislature is returning to its old “tax and spend” habit of spending on luxury public pensions and environmental programs.

Unknown revenues

The LAO is concerned because this new rule will result in “no longer [having] a good idea of a fiscal year’s revenues until one or two years after that fiscal year’s conclusion.” The LAO is asking for some help from the Legislature so that it can track the actual status of the budget.

The LAO wrote:

“We are now convinced that the problems that this new accrual method will introduce to the budgetary process outweigh its benefits. We recommend that the Legislature direct the administration to develop a simpler, logical budgetary revenue accrual system by 2015. Alternatively, to help ensure the accuracy of our forecasts and improve transparency, we recommend that the Legislature require the administration to document accruals regularly online.”

The problem with the new accounting rule should not be a partisan issue. It’s just accounting.

Now that Democrats soon will have a supermajority in both houses of the Legislature, they’re completely responsible. Republicans can do no more than stand on the beach and shout at the wind.

If a new law isn’t passed to make the accounting more accurate, allowing the LAO to make more accurate budget estimates, the only result will be disaster. The credit-rating houses, such as Moody’s and Standard & Poor’s, will have to downgrade the state’s credit rating even further to reflect the shaky numbers. In turn, lower credit ratings would mean higher payments from the general fund to pay for state and local bonds.

It’s like this. Suppose your income is $50,000 a year several years in a row and you apply for a car loan. The steady income shows your ability to repay is excellent.

But suppose you make $100,000 one year, then $0 the next. The average still is the same: $50,000 a year. But your income is unpredictable, so the auto credit companies would consider you a bad risk.

The same with the state. Accurate, predictable numbers are honest numbers. And honest numbers make the credit agencies happy.

 

13 comments

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  1. Ted
    Ted 21 November, 2012, 12:38

    Yes— That’s it! A new law! Eureka!

    Reply this comment
  2. Rex the Wonder Dog!
    Rex the Wonder Dog! 21 November, 2012, 19:09

    LOL…even The trougher can make me laugh every now n then 😉

    Reply this comment
  3. Ted Steele, Prosecutor
    Ted Steele, Prosecutor 22 November, 2012, 07:30

    0 for 14 ™ !

    The dumbest poster on CWD !

    Reply this comment
  4. Rex the Wonder Dog!
    Rex the Wonder Dog! 22 November, 2012, 10:27

    🙂
    That is so funny coming from you Teddy!

    I now always think of you as “Remenington Steele”……… 🙂

    Reply this comment
  5. Ted Steele, Prosecutor
    Ted Steele, Prosecutor 22 November, 2012, 19:05

    Poor Rexy Poodle— any comments on your larger losses?

    Prop 30?
    Obama?
    The cops pension lawsuits?

    LOL

    Reply this comment
  6. Rex the Wonder Dog!
    Rex the Wonder Dog! 22 November, 2012, 21:36

    So Teddy, you have made no prediction on the San Bernardino stiffing of CalTURDS….would you care to give us YOUR prediction on the outcome????

    BTW- I never made any prediction regarding Obama, I was not a Romeny supporter, amd knew he was a log shot the entire time.

    As for Prop 30, can we please forget about that 😉

    Reply this comment
  7. Ted Steele, Prosecutor
    Ted Steele, Prosecutor 22 November, 2012, 21:51

    LOL– The backpeddling Poodle! 0 for 14 ™ ! And he can’t remember his pre election predictions! LOL

    Reply this comment
  8. BobA
    BobA 23 November, 2012, 07:53

    Oh great! Just what California needs. Another thousand pages of useless laws. What happened to the previous thousands of pages of laws?

    How about a law that simply says that politicians will not be paid if they submit a budget that exceeds the state’s yearly income based on real numbers from the previous year and not forward projections or estimates?

    First and foremost, the state’s bills should be paid first. The politicians should only get paid when the state can afford to pay them. That’s how it works in the “real” world.

    Reply this comment
  9. Rex the Wonder Dog!
    Rex the Wonder Dog! 23 November, 2012, 08:39

    LOL– The backpeddling Poodle! 0 for 14 ™ ! And he can’t remember his pre election predictions! L
    ==
    So Teddy, you have made no prediction on the San Bernardino stiffing of CalTURDS….would you care to give us YOUR prediction on the outcome????

    Reply this comment
  10. Ted
    Ted "Eddy Baby" Steele, Associate Prof. 25 November, 2012, 13:36

    zzzzzzzzzzzzzz— you’re the predictor little troll…….not me…..and so far…….you’re worthless!

    0 for 14(tm)!

    Reply this comment
  11. Rex the Wonder Dog!
    Rex the Wonder Dog! 25 November, 2012, 16:57

    Hhahahhaha..that’s rght-stick that ilittle tail between those skinny little legs and RUN 😉

    M!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

    Reply this comment
  12. Ted
    Ted "Eddy Baby" Steele, Associate Prof. 26 November, 2012, 06:39

    0 for 14 ™ !

    How could one troll lose ALL of those predictions?????????

    Reply this comment
  13. Ted
    Ted 26 November, 2012, 15:51

    Remember when the Poodle failed on all of these election predictions???

    Rex The Wonder Dog! says:
    July 10, 2012 at 10:51 am
    Proposition 30 – Gov. Jerry Brown’s tax increase plan=DOA, will never ever pass
    Proposition 32 – Ban on payroll deductions for political contributions; ban on contributions to candidates from unions and corporations= YES!
    Proposition 34 – Death penalty repeal= YES, it simply doesn’t work, is applied in an arbitrary and capricious manner, the rich/connected are never charged with death penalty, appeals take 25 years and cost millions, dump it (even though there are MANY who deserve it)
    Proposition 37 – Labeling of genetically engineered foods=YES

    Reply this comment

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