Gov. Brown’s May budget revision balances only by ignoring unfunded liabilities

May 14, 2013

By Katy Grimes

SACRAMENTO — Balancing the economic realities of the state budget with political influences surely is a challenging task. Unfortunately, in California it is a task which few administrations have managed in recent state history.

Democratic Gov. Jerry Brown announced Tuesday morning that despite a state budget surplus, his May budget revision included projected lower budget figures for fiscal year 2013-14, which begins on July 1, than for the previous fiscal year. The reasons are one-time revenue surges because of federal tax changes that last only one year; and the retroactive part of the Proposition 30 tax increase for 2012.

The result will be less program spending, but with most of the spending increases focused on schools and Medi-Cal.

“We have climbed out of a hole with a Proposition 30 tax,” Brown said, referring to his 2012 initiative which increased taxes on those with incomes exceeding $250,000; and increased sales taxes on everyone. “This is not the time to break out the Champagne,” said Brown, who still called for caution despite an uptick in the state’s revenues.

“I am pleased that for the first time since I was elected to the Legislature we are not confronted with a multi-billion-dollar-deficit,” Sen. Mimi Walters, R-Laguna Nigel, said in a statement. “But let’s be clear, that is a result of a questionable retroactive tax that has accounted for the current projected surplus. I believe we can all agree that excessive spending and dubious budgetary gimmicks of this and previous governors have placed undue stress on California families.”

But the “surplus” is thin. Finance Director Anna Matosantos said it’s only a $2.8 billion “surplus” in the $96 billion 2013-14 budget.

Brown’s caution

Brown’s caution about the lower-than-expected revenues was an unexpected shift from media expectations leading up to the May Budget Revision. Many predicted that Brown would take full advantage of $4.5 billion in revenues that came in unexpectedly just this spring, and assign the money to many statewide programs. But Brown took a more cautious approach. He said his finance team was anticipating slower economic growth than previously thought, primarily due to federal spending cuts, Europe’s lower economic projections, and the higher payroll tax workers are now paying because the federal government allowed the payroll tax cut to expire.

“Four percent growth has now become 2 percent,” Brown said. Brown’s revised budget cut the personal income growth forecast from 4.3 percent to 2.2 percent.

Brown said passage of Prop. 30 was the reason for the revenues, but was quick to say that most of the money would be going to schools — especially to schools with high populations of non-English speaking students and children in foster care.

The revised budget for 2013-14 proposes an additional $2.9 billion in the current fiscal year for K-12 schools and community colleges.

Debt? What debt?

Brown had little explanation or discussion of the state’s massive debt problem in this $96 billion budget. Before understanding state spending and any talk of a surplus, the state’s debt must also be considered.

According to the Small Business Action Committee, because the Legislature has refused to make any sincere pension reforms moves, nearly $2.5 billion in pension debt has been run up just in the last two years.

Brown occasionally speaks of California’s “wall of debt.”  However, he is usually careful in his definition of debt, and only attributes a very small segment of what the actual debt obligation is. He didn’t say much about the “wall of debt” during the Tuesday press conference, but the written May Budget Revision says the budget plan will reduce the wall of debt to less than $5 billion by the fiscal year end of 2017, from $27 billion today.

But it must be difficult to reconcile a supposed state “surplus,” with actual, total bond debt of $79.6 billion, California State Teachers’ Retirement System debt of $70.9 billion, California Public Employee Retirement System debt of $128.3 billion, and other post-employment benefit debt of $63.8 billion, according to SBAC. Where is the surplus?

Not without controversy…

Brown is sticking to big spending on the controversial Common Core education program funding, primarily because of the influx of federal funds coming in if the state adopts the program. “$1 billion for the adoption of Common Core standards puts California in the forefront,” Brown said. Most Californians know just how important it is for California politicians to be at the forefront of every issue in America.

But Common Core is merely another one-size-fits-all, expensive national education standard that purports to be a fix-all to the continually dropping literacy scores — a problem created by the original education national standard.

“We have to get more kids through school in less time,” Brown said about higher education. “We’ve got 10 million immigrants [nationally]. We’ve got to get them legalized and into our schools.”

Other big spending programs include the Affordable Care Act, which will dramatically expand California’s publicly funded Medi-Cal health care program for low-income individuals. The ACA is another federal program Brown has embraced.

“California’s economy is not recovering at its full potential, weighed down, in part, by policy decisions made in Sacramento, like tax increases, the cap-and-trade program, and other regulatory burdens on state businesses. Regrettably, we are sending the wrong message to job creators in today’s May Revise,” Assemblyman Jeff Gorell, R-Camarillo, told media after Brown’s press conference.

“The elimination of funding for the state’s enterprise zones pulls the rug out from under hundreds of businesses that have relied in good faith on this program by moving operations into enterprise zones and hiring new employees,” Gorell said in a statement.  “The decision, if carried forward, will likely result in expensive litigation for the state and less savings for state government than projected, as was the experience with the elimination of redevelopment agencies.”

“Finally, I think the Governor should lay the groundwork for a rainy day fund that would smooth out the volatile tax revenue that California receives,” Gorell said.

While Brown warned that there’s essentially no extra money in the budget after education programs, when asked about restoring cuts to mental health and welfare programs, he emphatically said, “No. No. There’s no money.”

Gesturing at the Capitol building, Brown added, “This place is a big spending machine.”