LAO Whitewashes Gov. Brown’s Rosy Budget

Jan. 15, 2013

By Katy Grimes

SACRAMENTO — “Everything’s Coming Up Roses,” from the Broadway musical Gypsy, should be Gov. Jerry Brown’s new theme song. His 2013-14 budget proposal, released last Thursday, was full of happy news, good times a projected balanced budget and an upcoming surplus.

Clear the decks! Clear the tracks!
You’ve got nothing to do but relax.
Blow a kiss. Take a bow.
Honey, everything’s coming up roses!

Even more amazing than the governor’s rosy budget is that Legislative Analyst Mac Taylor appears to agree. Mostly.

Overview

I attended the LAO’s meeting yesterday at their Sacramento office where they presented their overview of the governor’s budget proposal. But a roomful of journalists didn’t completely buy the “everything’s coming up roses” message.

“The governor’s proposed budget reflects the significant improvement in the state’s finances that our office identified in November,” the LAO announced. “The budget roughly is in balance,” Taylor said today at the meeting.

Taylor explained that, in the LAO’s November budget projections, they recommended that “fiscal restraint” was necessary. “I think the governor’s proposal reflects that kind of discipline. He should be commended,” Taylor said.

Taylor admitted that, even with fiscal discipline, the governor did not address the state’s retirement obligation — a $500 billion unfunded pension liability. Taylor mentioned concern with the growing state teacher retirement fund.

He acknowledged that many of the reporters present had written stories questioning the gaping difference in the LAO’s projection of a $1.9 billion deficit, and Brown’s projected balanced budget  and surplus. Taylor explained that, while Brown’s administration and the LAO were still far apart in budget projections, the Department of Finance did a better job this time around bringing their lofty projections back down to earth.

Last year, Brown’s budget numbers were so far off of the LAO’s that, by the May Revise of the Budget, Brown and the Department of Finance had to drastically reduce their happy projections, and at least address the fiscal mess the state was in.

This year, Brown has erased the deficit from his budget proposal, and is projecting that, by 2015, California will enjoy a $1 billion surplus. Everything’s coming up roses.

Math is hard

According to Teen Talk Barbie, “math class is tough.”  

And the governor’s numbers don’t add up — particularly with the more than $500 billion unfunded pension debt, as tallied by a Stanford University study; and the $10 billion owed to the federal government for California’s Unemployment Insurance borrowing.

Brown’s budget proposal lists only $181.2 billing in unfunded retirement liabilities. However, State Budget Solutions‘ third annual State Debt Report demonstrated an unfunded California pension liability of $617 billion — larger even than the number in the Stanford study.

Wall of debt

According to the governor’s budget proposal, California’s “wall of debt” totaled only $34.7 billion last May, and is now down to $27.8 billion. It includes:

* Deferred payments to schools and community colleges;

* Economic Recovery Bonds;

* Loans from Special Funds;

* Unpaid costs to local governments, schools and community colleges for state mandates;

* Underfunding of Proposition 98;

* Borrowing from local government (Proposition 1A);

* Deferred Medi-Cal Costs;

* Deferral of state payroll costs from June to July;

* Deferred payments to CalPERS;

* Borrowing from transportation funds (Proposition 42).

Taylor said that the choice is paying down the debt, versus adding new revenues, but not both.

Taylor noted that the wall of debt was not included  because “we know what the numbers are.”

But any way you slice it, California owes a great deal of money and its budget cannot be balanced, or honestly look at a surplus, anytime soon.

Health and education funding

California is facing a dramatic change in health care funding in the very near future because of  Obamacare. The state will be shifting the entire Healthy Families program into Medi-Cal.

Healthy Families is low-cost insurance for children and teens. Medi-Cal is California’s health care aid for anyone receiving welfare assistance. This is not apples-to-apples by any stretch of the imagination.

Taylor acknowledged that he didn’t want to discuss this, and shifted right into education spending.

Prop. 39 and education funding

An area in which Taylor appeared to be in disagreement with Brown was over Proposition 39, the ballot initiative which passed in November, taxing out-of-state businesses with a physical presence in California.

Projected Prop. 39 revenue will go right into the General Fund as well as into spending for renewable energy. It also factors into the mandatory education spending calculation of Proposition 98. Prop. 39 is estimated to bring in $1 billion in tax revenues, but many warn that this is also a volatile revenue prediction.

Taylor said that the Prop. 39 ballot pamphlet specifically said that revenue from Prop. 39 would be spent on energy-related projects for the first five years, and then into education.

Taylor argued that the Prop. 39 revenues should not be counted toward education funding for the first five years. “But, it has short-term consequences — only five years,” he said.

Differing ‘assumptions’

Taylor said that Brown’s budget proposal “assumes a different set of assumptions.” But isn’t accounting usually done one way in this country? A different set of assumptions may work in marketing, but not in the real world where real people have to face real budget crises.

While Brown’s budget proposal is even more rosy than the LAO’s projections, the economic assumptions in the budget summary claim that there is an economic recovery, many sectors of the economy are improving, real estate conditions are better, the housing market is improving and unemployment is dropping. On Thursday, Brown never mentioned how the millions of unemployed Californians will find work, or how the economy will improve with this increase in government spending and taxing.

I don’t believe for a minute that Taylor buys into Brown’s budgets. What Taylor says publicly and what his reports say also have differing assumptions.