LAO confirms insanity of Mac Taylor’s November happy talk

March 21, 2013

By Chris Reed

In November, to the amazement of many journalists who have admired the independence and thoughtfulness of the Legislative Analyst’s Office over the years, LAO boss Mac Taylor gave an amazingly sunny take on the state of California’s finances. Here’s what I wrote about Taylor’s happy talk at the time:

“The LAO predicts there will be a budget shortfall of $1.9 billion that has to be covered during the remainder of this fiscal year and in 2013-14. After that, the analysis predicts that a recovering economy – and continued state spending restraint — means there is a ‘strong possibility of multibillion-dollar operating surpluses within a few years,’ even after the expiration of the temporary sales tax hike approved last week by state voters.

“Given the Legislature’s history of quickly spending surpluses instead of banking them for a rainy day, we find the idea that there is a ‘strong possibility’ of multiple years of surpluses to be detached from reality. Besides the Pollyannaish quality of that assessment, we note that other budget analyses … are far gloomier.”

I cited several negative factors. Here are some:

“• The likelihood of major cuts in defense spending in coming years as the federal government strives to end trillion-dollar annual deficits.  …

“• The prospect that the broad switch to cleaner-but-costlier energy mandated by AB 32 will drive heavy industries from the state and make California’s exports less cost-competitive.

“• The heavy costs of implementing President Obama’s health care overhaul going forward as federal subsidies diminish and as Medi-Cal patients explode in number – just as many of the state’s family doctors near retirement. The California Academy of Family Physicians says 30 percent of primary-care physicians are 60 or older, the highest percentage of any state.

“• The cost of paying for pensions and health care for a steadily growing army of public employee retirees. A 2010 Stanford study that avoided rosy return scenarios puts the total unfunded pension liability at $500 billion; LAO accepts the rosy scenarios.”

Now the LAO has come out with a report that shows how dire that last factor is likely to be.

“The pension fund for California teachers and school employees will run out of money by 2044 if lawmakers don’t take drastic action, according to a new report from the Legislative Analyst’s Office.

“The report said problems with the pension fund, known as CalSTRS, ‘may be state’s most difficult fiscal challenge.’

“The costs are massive and growing. The latest estimate pegs the fund’s unfunded liability at $73 billion as of June 2012, up from $64.5 billion the year before.

“‘This is more costly the longer we wait,’ said Ryan Miller of the Legislative Analyst’s Office during a hearing Wednesday.”

Hey, Ryan Miller: Can you have a talk with your boss? Can you tell him that his November report is completely undermined by your report?

I truly believe that Mac Taylor’s November 2012 remarks will haunt him for as long as he is a public figure. Sure, Jerry Brown has made progress on the state’s fiscal chaos. But for a respected watchdog to say that California is on the brink of an era of budget surpluses? OMG, as the kids say.

What a crock, I say.