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

May 14, 2013

By Katy Grimes

Jerry Brown -2

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.

The bottom line, though, is more money is going to schools than is coming in. Some say that much of the money will go toward teachers’ pensions.

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.”

26 comments

Write a comment
  1. Kris Hunt
    Kris Hunt 14 May, 2013, 17:47

    Only governments can leave out major expenses and claim the budget is balanced.

    Reply this comment
  2. The tedx
    The tedx 14 May, 2013, 20:13

    Blah blah choir
    Preach blah

    Reply this comment
  3. fish
    fish 14 May, 2013, 21:53

    Ted…..a comment worthy of your intellectual level……blah blah tedsz.

    Reply this comment
  4. Ted Steele, Associate Prof.
    Ted Steele, Associate Prof. 15 May, 2013, 06:46

    Fishlips– right back at you.

    Equating the budget balance,which has been amazing, with the faux unfunded liabilities, is more tea party faux nonsense.

    Reply this comment
  5. jimmydeeoc
    jimmydeeoc 15 May, 2013, 08:08

    Even more troubling…..

    Why is this $4.5B so “unexpected”……as if it just showed up in a basket on the doorstep with a note attached.

    Surely there are savvy econometricians on the State’s bloated staff……one would think someone could have figured out what the effect of changes to Fed tax policy would mean.

    Reply this comment
  6. CalWatchdog
    CalWatchdog Author 15 May, 2013, 09:50

    Jimmy, this $4.5 billion was not unexpected. I think they were expecting more tax revenue to come in. But the targeted people with money saw this coming and made moves, financial adjustments, pulled money where they could. Money walks.

    Katy

    Reply this comment
  7. Bunker Queen
    Bunker Queen 15 May, 2013, 14:03

    Equating the budget balance,which has been amazing, with the faux unfunded liabilities, is more tea party faux nonsense.

    Much like your faux intellect.

    Reply this comment
  8. Ted Steele, Navigator
    Ted Steele, Navigator 15 May, 2013, 14:29

    Mmmmmmmmmmmmmmmmmmmmmmm….Queeny.

    Reply this comment
  9. NTHEOC
    NTHEOC 15 May, 2013, 14:35

    “Unfunded liability”, The phrase the right wing continues to use to push their agenda! But nobody is biting. Since the beatings republicans have taken I wonder how much longer they are going to use the “Chicken little” scare tactics?

    Reply this comment
  10. NTHEOC
    NTHEOC 15 May, 2013, 14:41

    Katy grimes says,
    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.
    —————————
    Uhhhh, Katy. You should be thankful we even made some pension reform deals at all! It did not even need to be done but was only because of politics.

    Reply this comment
  11. Ted Steele, Navigator
    Ted Steele, Navigator 15 May, 2013, 14:42

    NTHEOC is correct— move to the head of the class!

    Reply this comment
  12. NTHEOC
    NTHEOC 15 May, 2013, 14:46

    Total CalPERS Fund
    Market Value
    Reflects market value, as of market close on 5/14/2013.
    $265.5 Billion
    ———————–
    Wow!!!!! Calpers continues to light up the $$$$$$$$$$$ signs! As dose Wall Street, the housing market, auto sales, the economy, corporate profits, etc,etc……..Time for the desperate right wingers to think of something other than “the sky is falling” mantra!

    Reply this comment
  13. CalWatchdog
    CalWatchdog Author 15 May, 2013, 15:02

    Wrong again NTHEOC –

    I should be thankful for the phony pension deal from last year which won’t actually adjust public pensions for another 30 years?

    “It did not even need to be done but was only because of politics.” Pffft. Tell me that with a straight face when another city files for bankruptcy. Even the cities in BK are avoiding the reality. They will find themselves there again if they don’t cut the unrealistic, unsustainable, fairy tale pension promises.

    Katy

    Reply this comment
  14. NTHEOC
    NTHEOC 15 May, 2013, 15:16

    They will find themselves there again if they don’t cut the unrealistic, unsustainable, fairy tale pension promises.
    Katy
    —————————-
    Pension envy really does not bring out the best in you Katy.

    Reply this comment
  15. Tough Love
    Tough Love 15 May, 2013, 15:49

    Quoting NTHEOC, ““Unfunded liability”, The phrase the right wing continues to use to push their agenda! But nobody is biting. Since the beatings republicans have taken I wonder how much longer they are going to use the “Chicken little” scare tactics?”

    In due course, each $1 of your pension will be reduced to $0.50.

    Please let us know it that “bites”.

    Reply this comment
  16. CalWatchdog
    CalWatchdog Author 15 May, 2013, 15:57

    Okay tough love, how about we call the pension liability an albatross, or baggage, commitment, dead horse, debenture, deficit, duty, encumbrance, or say the state is in hock, in the hole, in the red.

    Would you prefer I call the pension liability ‘debt’ and the state the ‘debtor?’

    It’s the debtor who files bankruptcy because he can’t pay his debts. California cannot pay the half a trillion dollars in pension debt. At some point the state will default, but it will be county by county, city by city, municipality by municipality.

    Debt debt debt.

    Katy

    Reply this comment
  17. Queeg
    Queeg 15 May, 2013, 17:08

    Come on….jerry Brown is holding the line on spending….he told us so…

    Reply this comment
  18. The Ted
    The Ted 15 May, 2013, 18:44

    NTHEOC You are making me laugh too hard!

    Katy, lets call it debt , well, like your mortgage!

    Oh my.

    Reply this comment
  19. NTHEOC
    NTHEOC 15 May, 2013, 22:11

    Tough love says,
    In due course, each $1 of your pension will be reduced to $0.50.
    Please let us know it that “bites”.
    —————————-
    Sure buddy!!

    Reply this comment
  20. NTHEOC
    NTHEOC 15 May, 2013, 22:19

    CalWatchdog says:
    May 15, 2013 at 3:57 pm
    Okay tough love, how about we call the pension liability an albatross, or baggage, commitment, dead horse, debenture, deficit, duty, encumbrance, or say the state is in hock, in the hole, in the red.
    ————————
    Do you also call your home mortgage that??

    California cannot pay the half a trillion dollars in pension debt.
    ————————–
    Sure it can,and it will!! Again, if all mortgages came due today you could say the same thing. Good thing it doesn’t work that way Katy. Enjoy the koolaid!!!!

    Reply this comment
  21. Queeg
    Queeg 16 May, 2013, 07:42

    Stop worry….tension…..pay up and shut up! You will be delivered!

    Reply this comment
  22. Bunker Queen
    Bunker Queen 16 May, 2013, 11:52

    Mmmmmmmmmmmmmmmmmmmmmmm….Queeny.

    IS Mmmmmmmmmmmmmmmmmmmmmmm something you type while that TRS-80 in your soft little noggin tries to come up with a witty retort.

    How sad for you TEDZS.

    Reply this comment
  23. Ted Steele, Navigator
    Ted Steele, Navigator 16 May, 2013, 12:27

    Poor Queeny! LOL

    Reply this comment
  24. Ted Steele, Navigator
    Ted Steele, Navigator 16 May, 2013, 13:50

    Calpers value today?

    265.9 BILLION

    Oh my– the sky is faaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaalling

    Reply this comment
  25. Tough Love
    Tough Love 18 May, 2013, 21:14

    Ted, CalPERS “Liability” today

    $500+ Billion.

    OH MY– the sky IS faaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaalling

    Reply this comment

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