Gov. Brown advances apparently balanced budget

Gov. Jerry Brown today advanced a budget proposal that apparently is balanced for fiscal year 2014-15, which begins on July 1. It would spend a record $106.8 billion on the general fund, which is up a hefty 23 percent from the $86.8 billion of his first budget three years ago, for fiscal 2011-12.

The new budget includes a $1.6 billion “rainy day fund,” or 1.5 percent of the total.

The budget addresses what the governor has called the “Wall of Debt” run up by the state, currently totaling $24.9 billion. The major items are:

* $6.1 billion in deferred payments to schools, which will be eliminated;

* $3.9 billion for the Economic Recovery Bonds voters approved in 2004, at the insistence of Gov. Arnold Schwarenegger, which will be eliminated;

* $3.9 billion in loans from special funds, which will be reduced by $1 billion, to $2.9 billion;

* $5.4 billion in unpaid costs to local governments and schools for state mandates, which will remain the same;

* $2.4 billion for the under-funding of Proposition 98 for schools, which will be reduced by $600 million, to $1.8 billion.

Spending increase

In a question-and-answer session with reporters, I asked about the $20 billion increase in spending over three years.

The governor replied that most of the new spending is going to pay down the Wall of Debt. “When you pay off that debt, you improve the debt, you don’t make it worse,” he said.

However, the Wall of Debt includes two kinds of debt: First, what it owes to outside entities, mainly bond houses. This is real debt that, if not paid, would slam the state’s credit rating. Paying down the $3.9 billion from the Economic Recovery Bonds really does help the state’s financial position.

Second is what the state “owes” to itself, such as the deferred payment to schools, loans from special funds and under-funding Prop. 98. “Paying down” this kind of a loan really is just more spending. For the fiscal 2014-15 budget, this kind of spending amounts to about $9 billion, mainly the $6.1 billion in deferred payments to schools and community colleges.

Next year, it’s likely that continuing this spending will be demanded of the state by the schools and community colleges. On the positive side, cutting the spending — not including it in the budget for 2016-17 — could be easier because the governor could claim it was just a one-time situation.

CalSTRS

As did last year’s budget proposal, the governor’s 2014-15 proposal acknowledged that the California Teachers Retirement System “estimates that stabilizing the system could cost more than $4.5 billion a year, which could overwhelm other education priorities as well as other policy initiatives.” The proposal advances that, “A new funding strategy should phase in contribution increases for employees, employers, and the state to allow parties to prepare for increased costs.”

It should be noted that “employers” means local taxpayers and “the state” means state taxpayers.

And the budget proposal does not advance a solution. So if the needed $4.5 billion had been included in the budget, it would have devoured all the $1.6 billion rainy day fund and produced a deficit.

In the Q&A, CalWatchdog.com asked about the $4.5 billion needed for CalSTRS. Brown replied that he would be dealing with the problem, presumably if he is re-elected in November. “One way or another, we’re going to pay those teacher pensions,” he said. “This teacher retirement problem is real.”

More spending

Overall, the budget “continues our investment in schools by providing $10 billion this year alone to give California students a much better chance to succeed,” the governor wrote in is introductory words. And in his discussion with reporters, he touted his program of shifting more spending to needier schools.

But the budget does not deal with the problems of the educational policies behind school dysfunction. Spending more money on failed policies will only produce more expensive failures. The latest results from the National Assessment of Educational Progress found, according to the summary in the Mercury-News, “The Golden State’s fourth-graders ranked 47th in the nation in both math and reading. Eighth-graders ranked 45th in math and 42nd in reading. And the scores show that the gap separating white students from their black and Latino peers in English and math is bigger in California than it is nationwide.”

On the positive side, “But amid the dismal news are signs of improvement. California’s eighth-grade reading scores jumped 7 points from two years ago, the biggest gain on that test among the states. Eighth-graders gained 3 points in math.”

But unless such gains continue and even accelerate, the state is going to find that it won’t have the human capital to continue its preeminence in the world of high technology.