CA budget worse despite $2 billion new revenue

CA budget worse despite $2 billion new revenue

 

up the down staircaseCalifornia’s budget picture is sort of like that old Sandy Dennis high-school movie, “Up the Down Staircase.”

Going up: Legislative Analyst Mac Taylor just reported tax receipts jumped $2 billion over projections in the fiscal 2014-15 budget the Legislature passed, and Gov. Jerry Brown signed, last June. And the state’s credit rating was bumped up to A+ by Standard & Poor’s after voters on Nov. 4 passed Proposition 2, which strengthened the state’s rainy-day fund. The last time the bond rating was increased to A+ was in 2006.

Going down: Despite the added revenue, the state has reached a limit on what it can spend, according to a new study by insurance-asset manager Conning and Company, “Municipal Credit Research: State of the States.”

Moreover, for October Conning ranked California 36th among the states on its percentage of Expenditure Burden, defined as a percentage of the burden on general fund revenues for debt, future pensions and Medicaid expenditures. That’s four ranks lower than for April.

And as CalWatchdog.com calculated, California also has the largest Expenditure Burden in terms of absolute dollars, as shown in the following table. (Expenditure Burden is the far-right column.)

States with Highest Expenditure Burden (Fourth Quarter 2014)

 

State Expenditure Burden, percent of general fund Total General Fund Budget 2014-15  (in $billion) Expenditure Burden in Absolute Dollars (in $billion)
Nevada 43.2% $6.6 $2.851
Ohio 36.4% $30.677 $11.17
Illinois 30.3% $65.9 $19.97
California 25.4% $107.987 $27.43
Kentucky 24.7% $5.776 $1.43

Pension burdens

Gov. Brown’s June budget report correctly projected the state’s “Wall of Debt” will be cut from $34.7 to $13.8 billion by the end of fiscal 2014-15 next June 30.  But this picture of the debt omits future unmet pension burdens and Medicaid spending.

Just before the election, Controller John Chiang – on Nov. 4 himself elected as the new state treasurer – released figures on pension debt that confirmed a crisis long raised by pension critics. He warned:

“The unfunded actuarial accrued liability of the state’s pension systems — or the present value of benefits earned to date that are not covered by current plan assets — shows it has steadily risen from $6.33 billion in 2003 to $198.16 billion in 2013.”

That warning was confirmed by Paul Mansour, Conning’s head of muni research. He told Bloomberg, “California is still being held back by relatively high debt and pension levels…. We are more cautious on them than the [bond] rating agencies.”

Bloomberg also reported:

“California has $87 billion of bonds paid from the general fund, more than twice as much as a decade ago, according to data from the state. Voters also approved $7.5 billion for water infrastructure bonds this month [Propositon 2]. Its $2,465 of debt per resident is the third-highest burden among the 10 most-populous U.S. states, according to a report issued last month by Treasurer Bill Lockyer. New York ranks first, with $3,204 per person. The median among all states is $1,054.”

Forecast

There’s another reason why the new $2 billion in revenue the LAO forecast doesn’t much help long-term pension and medical-expenditure burdens. Proposition 98, passed in 1988, mandated about 40 percent of any revenue – including new revenue – must go to public schools.

As the LAO reported:

A $4 billion reserve would mark significant progress for the state, but maintaining such a reserve in 2015-16 would mean little or no new spending commitments outside of Proposition 98, the funding formula for schools and community colleges.” 

So of that extra $2 billion, just $1.2 billion of it can be used for other spending, debt reduction or reserves — about 1 percent of an $108 billion general-fund budget.

Moreover, according to the LAO, despite the new revenue, the general-fund’s balance actually has declined due to adjustments, including “a $358 million downward adjustment relating to an allocation of state sales and use tax (SUT) to local governments to correct for past accounting issues. All told, these adjustments result in an entering fund balance of $2.2 billion, or $243 million lower than the budget’s assumptions.”

Bottom line: California’s budget problems are far from over. Every good-news story going up the stairs seems to be met by a bad-news story going down.

12 comments

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  1. Tough Love
    Tough Love 22 November, 2014, 08:36

    Quoting …. “Bottom line: California’s budget problems are far from over. Every good-news story going up the stairs seems to be met by a bad-news story going down.”

    California’s financial problems have ZERO (yes ZERO) chance of not becoming far WORSE unless their gutless politicians develop the stomach to confront their insatiably greedy Public Sector Unions/workers and either:

    (a) hard freeze the current DB pension Plans (ZERO future growth) for the future service of all CURRENT workers, or

    (b) If (a) above is simply not doable (but only exploring all legal avenues and options to do so), the pension accrual rate for the future service of all CURRENT workers is reduced by AT LEAST 50% (and 66% for safety workers with the most egregious pensions)

    And ……. all retiree healthcare subsidies (above a modest $300-$550 annual contribution into an HSA) grade down to ZERO (for all current and retired workers) within no more than 5 years.

    Reply this comment
  2. Ulysses Uhaul
    Ulysses Uhaul 23 November, 2014, 16:23

    These pension sob stories are crusteeeee dated. Same song, new doomer.

    Consider using us when you move.

    Holiday specials on Amazon jungle twine and Moldovian matress moving covers.

    Reply this comment
  3. Desmond
    Desmond 23 November, 2014, 19:00

    Debt is irrelevant unless owed to the state. Ignore all debt to capitalist pigs.

    Reply this comment
  4. T Ted Mentor to the Doomera
    T Ted Mentor to the Doomera 24 November, 2014, 09:45

    Desi!

    PLEASE do not become yet another drama queen on CWD. Hyperbole is the province of Dr. Seliers, not you sir. You are one of the unwashed posters.

    Debt is still enforced widely in the land of the free— courthouses abound with the hustle and bustle of collection.

    Try to relax little buddy!

    Reply this comment
    • John Seiler
      John Seiler 24 November, 2014, 12:17

      Courthouses also abound with the hustle and bustle of collection. And it’s only just begun:

      http://www.zerohedge.com/news/2013-09-11/lawrence-kotlikoff-us-fiscal-gap-200-trillion-our-country-broke

      Reply this comment
      • Ted Mentor
        Ted Mentor 24 November, 2014, 12:57

        Kind of a rehash Johnny?

        Reply this comment
      • Ted Mentor
        Ted Mentor 24 November, 2014, 13:00

        Everybody’s mortgage is due right now– because I say so—- because I don’t think we should honor the contract you made with your bank…or your landlord’s K with his bank…….sleepy Johnny– just sleepy….Zzzzzzzzzzzzzzzz

        I hope you’re getting enuf sleep.

        Reply this comment
        • John Seiler
          John Seiler 24 November, 2014, 13:07

          Ted: Maybe you forget all the people who “walked away” from their mortgages 2007-10?

          Reply this comment
          • T Ted Excel
            T Ted Excel 24 November, 2014, 13:37

            Yes
            I remember that.

            Not too sure your point here though. Most Americans, a vast majority did not. Desi above is indicating that all private debt is null. Your post asserts the trillions in unpaid debt— so what?

          • John Seiler
            John Seiler 24 November, 2014, 16:14

            It’s not $200 trillion in unpaid debt, but unfunded liabilities — mainly Social Security and especially Medicare. Baby Boomers expecting these benefits are going to find them greatly reduced. But to delay the reductions, much of the rest of the govt. will be cut first, including the promised pension payments to govt. workers. Tax increases won’t work, because they only would reduce U.S. competitiveness with foreign countries.

          • Rex the Wonder Dog!
            Rex the Wonder Dog! 25 November, 2014, 09:59

            LOL…trying to reason with a trough feeding lunatic like Steals… funny stuff 🙂

  5. Movingoutofca
    Movingoutofca 12 January, 2015, 10:27

    I actually look forward to the day when the PENSIONS go BUST. The morons who kept electing Democrats to run, I mean, ruin this state, will in FACT get their just rewards. The dollar is about to Crash, and moronic democrat leaders across this nation with the help of UNIONS, have destroyed our country. Instead , we are now a consumption nation, and to rebuild will take DECADES. My only peace, this CRASH will turn the tide and Capitalism and the FREE MARKET will once again rule this nation. I hope we follow IceLand and LOCK UP the corrupt politicians and bankers, striping them of all their assets, as to pay back the American Tax Payers. Be very afraid, Nancy Pelosi, Harry Reid, Charlie Rangel and the rest of you greedy politicians. Maybe the new council will make a deal with Russia to house all of you in their PRISONS! Democrats have DESTROYED THE NATION!

    Reply this comment

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