The belief that California has a profound housing crisis took hold in the state’s media and political establishments in recent years after Census Bureau statistics showed the Golden State had the highest effective rate of poverty once cost of living was included.

The view was amplified by stories about four-hour commutes forced by housing costs and about shocking numbers of poor college students who struggled to pay for food.

That’s why the decision last week by state Senate Appropriations Chairman Anthony Portantino, D-La Cañada Flintridge, to kill Senate Bill 50 – the latest attempt to spur housing construction by limiting local control of approvals
– came as a surprise to many. That included the bill’s sponsor, Sen. Scott Wiener, D-San Francisco. His push to ease rules to allow four-to-five-story apartment buildings near public transit centers and to allow construction of such units in many zones previously reserved for single-family homes had won support from not just developers but construction labor unions, several large-city Democratic mayors and some activist groups. Many were skeptics of Wiener’s and Gov. Jerry Brown’s previous attempts to limit local control.

Stories about Portantino’s decision focused on the fact that leaders of cities in his district, starting with Pasadena, had been vociferous opponents of Senate Bill 50. Reports also focused on the formidable influence of environmental groups, which prefer strict zoning rules to give them more clout to block development.

These arguments are common. In August 2016, when Brown’s attempt to sharply streamline the approval process for housing projects died in the Legislature, Shamus Roller, executive director of Housing California, blasted “the political gamesmanship of powerful interests.”

Californians ‘must be convinced of benefits’ of adding housing

But another view is that then-state Legislative Analyst Mac Taylor knew what he was talking about in March 2017 when he issued a report on the failure of local governments to meet housing mandates that said major change was unlikely “unless Californians are convinced of the benefits of more home building.” Instead of seeing the failure of housing reforms as a result of special-interest machinations, Taylor argued that elected leaders who backed such measures hadn’t cultivated the public support necessary to enact major changes.

Taylor’s thesis was supported by a USC Dornsife/Los Angeles Times poll of Californians released in October that found little belief that the housing crisis was due to a lack of building. It was the sixth-most cited reason, falling far behind the top two: the lack of rent control in much of the state and inadequate “affordable housing” programs. Two-thirds of those surveyed supported local control of housing approvals even if cities or counties weren’t meeting state mandates for new housing construction.

Still, Wiener said he wasn’t daunted by Portantino’s decision. He said he would bring another housing reform measure to the state Senate in 2020. The former San Francisco supervisor, a Harvard law graduate, also said he thought Senate Bill 50 had a chance of being resurrected this summer, even though appropriation chairs of the Senate and Assembly have a long history of making their decisions stick.

“We’re either serious about solving this crisis, or we aren’t,” he told reporters in Sacramento last week. “At some point, we will need to make the hard political choices necessary for California to have a bright housing future.”

In January 2017, state lawmakers returned to the Capitol determined to make a difference on the state housing crisis. Dozens of bills were touted – including Senate Bill 35, by state Sen. Scott Weiner, D-San Francisco, which ended up as the most far-reaching law to reduce obstacles to housing construction in modern California history.

But even as momentum built for SB35 and other housing measures, the head of the respected, nonpartisan Legislative Analyst’s Office warned in a 12-page report issued in March 2017 that state lawmakers would never be able to reduce the housing shortage without much more support from the public.

“Unless Californians are convinced of the benefits of significantly more home building – targeted at meeting housing demand at every income level – no state intervention is likely to make significant progress on addressing the state’s housing challenges,” wrote Mac Taylor.

Now a USC Dornsife/Los Angeles Times survey offers the most definitive support yet for the legislative analyst’s conclusion that when it comes to building new housing, Californians aren’t very enthusiastic.

Few see lack of construction as big problem

The survey asked 1,180 Californians why they thought housing was so expensive in the Golden State. They were given a list of eight possible primary reasons.

The most popular reasons were lack of rent control (28 percent) and lack of affordable housing programs (24 percent).

In the middle tier of explanations were environmental regulations (17 percent), foreign home buyers (16 percent) and the influence of the tech industry (15 percent).

Bringing up the rear were a lack of homebuilding (13 percent), Wall Street buyers (10 percent) and restrictive zoning rules (9 percent).

The Times’ analysis of the poll noted how at odds the public’s view of housing is with the view of economists, policy analysts and housing experts.

There is “general agreement that a lack of supply is at the root the problem. Reports from the state Department of Housing and Community Development, the nonpartisan Legislative Analyst’s Office and a host of academics contend that California has a chronic shortage of home building that has failed to keep pace with the state’s population growth – especially during the recent economic expansion – which has forced prices up.”

But this wasn’t the only way Californians parted with conventional wisdom. The survey also included other questions that showed two-thirds of those surveyed backed local control over housing even if local governments weren’t meeting state-set goals for adding housing stock.

It is this local power over the approval process that empowers motivated NIMBYs in city after city. Taylor’s March 2017 study identified it as the single biggest reason behind the emergence of the housing crisis.

“For decades, many California communities – particularly coastal communities – have used this control to limit home building,” the legislative analyst wrote. “As a result, too little housing has been built to accommodate all those who wish to live here. This lack of home building has driven a rapid rise in housing costs.”

Tech industry certain to keep pushing for housing 

While the USC-Times poll could influence candidates in close elections to side with NIMBY views, it is unlikely to blunt new efforts by the Legislature to use legislation to bring down housing costs. The deep-pockets, influential Silicon Valley Leadership Group is one of many business organizations that sees the housing crisis as a threat to the state’s future prosperity because of its potential to hurt recruitment and retention of workers.

Another of the state’s most politically potent forces – the California Teachers Association – also sees the housing issue as bad news for its members. But the CTA’s main policy prescription for now is Proposition 10 – the Nov. 6 ballot measure that would overturn a 1995 state law and let cities impose rent control. It has generally trailed in state polls, although with high numbers of undecided voters.

When Gov. Jerry Brown’s aggressive proposal to jump-start housing construction by sharply streamlining the approvals process for urban housing projects that met certain conditions

Coverage of the “by-right” proposal had emphasized that both unions and environmentalists didn’t want the California Environmental Quality Act to be weakened – even if the Golden State had the nation’s highest effective poverty rate because of sky-high home prices and among the nation’s highest rents. That’s because CEQA lawsuits enable the groups to win concessions from developers and government agencies or to block projects they don’t like. In an op-ed in the Sacramento Bee, Shamus Roller, executive director of Housing California, lamented the proposal’s failure and complained about “the political gamesmanship of powerful interests.”

But now there’s push-back against this tidy assumption about what’s driving the housing crisis, and from an unlikely source: Legislative Analyst Mac Taylor. In “Do Communities Adequately Plan for Local Housing?” – a report prepared by LAO staff but carrying Taylor’s byline – the first central conclusion is that the process under which the state Department of Housing and Community Development works with cities and counties on their general plans to ensure adequate housing isn’t working. It cites little follow-through from many local governments on past promises and notes that many development plans are badly outdated and unusable. It offers suggestions on how the process might be improved to speed construction of housing stock.

Local officials do bidding of local housing opponents

But then Taylor offered his theory about why state housing policies have failed to address the housing crisis: because foot-dragging local officials are doing the bidding of their constituents.

When it comes to rule changes to speed up construction, “many local communities have fervently opposed, obstructed, or even disregarded such changes in the past. … Any major changes in how communities plan for housing will require their active participation and a shift in how local residents view new housing,” Taylor wrote. “There is little indication, however, that such a shift is forthcoming. Convincing Californians that a large increase in home building – one that often would change the character of communities – could substantially better the lives of future residents and future generations necessitates difficult conversations led by elected officials and other community leaders interested in those goals. Unless Californians are convinced of the benefits of more home building – targeted at meeting housing demand at every income level – the ability of the state to alter local planning decisions is limited.”

The governor is trying again, however, to change the status quo. In January, his office unveiled a legislative package meant to streamline the approvals of building permits and to give incentives to local governments to reduce permit costs.

Democratic lawmakers, meanwhile, continue to focus on affordable housing projects to ease the crisis. State Sen. Toni Atkins, D-San Diego, has proposed Senate Bill 2 which would add fees of $75 to $225 to property transfers, with the exception of home sales, with some of the proceeds going to pay for housing for poor families and migrant workers.

But the governor’s proposed $170.7 billion budget ($122.6 billion general fund) for the 2016-17 fiscal year would lead to repeating that mistake when the next recession hits.

Revenues will plunge $55 billion over three years if an average recession hits next year according to the budget summary. That would result in a $29 billion budget deficit in 2020 based on Brown’s current spending proposal, which includes $4 billion in one-time expenditures. If the Legislature instead spends that $4 billion on new or ongoing programs, the deficit would balloon to $43 billion – larger than occurred during the Great Recession.

Recession Expected

California is in the seventh year of economic expansion. That makes it two years overdue for a recession, which has occurred every five years on average, according to Keely Bosler, chief deputy director of the California Department of Finance.

“While there is significant uncertainty in forecasts, there is one thing that is quite certain: and that is history,” Bosler told the Senate Budget and Fiscal Review Committee Jan. 19. “It’s this boom-and-bust cycle that this budget really aims to avoid going forward.” But she acknowledged that “the budget in the state of California does remain precariously balanced over the long term.”

Her cautionary words were echoed by committee Vice Chairman Sen. Jim Nielsen, R-Tehama.

“We must keep in mind that though times are a little bit better, some parts of our economy have not improved,” he said. “And therefore we must exercise constraint and not get overly ambitious. And that will be what governs our progress in the budget. Let’s not get overly ambitious, and let’s not let government get out of control.”

Examine the Department of Finance 2016 Budget Slides here

But Democratic legislators are eager to spend some of the budget surplus on ongoing social programs, particularly for the developmentally disabled, instead of socking it away in the state’s rainy day fund – despite the likelihood that doing so could once again bust the budget.

“It shouldn’t surprise any of us that a recession is at hand. The question is when, not if,” said committee Chairman Sen. Mark Leno, D-San Francisco. “At the same time, an additional $2 billion set aside in the rainy day fund above and beyond what voters told us they’d like to see in it – that I think will be at least part of the playing field of our debate.

“What is appropriate for continuing payment of debt and for reserves, at the same time recognizing that so many Californians who have been hurt at the time of the recession have not seen much recovery or reinvestment in the programs for which they rely for their quality of life?” Sen. Leno asked.

Rainy Day Fund

Proposition 2, passed in 2014, requires that $2.6 billion in this year’s budget be placed in the rainy day fund. Brown has proposed adding an extra $2 billion to the fund. That would bring the total to $8 billion (with previous funding), equating to two-thirds of the constitutional target of 10 percent of general fund revenues, according to Bosler.

But legislative analyst Mac Taylor warned the committee that, while it’s good to beef up state reserves, the Legislature would be unnecessarily tying its hands by going along with Brown’s extra $2 billion in the rainy day fund, which is known formally as the Budget Stabilization Account.

“We would caution you not to put extra money into the BSA,” Taylor said. “Once you put it in the BSA, it’s governed by the rules in the BSA. You can only take out half the monies, if you have a downturn, in the BSA. You might imagine a situation when you might want to take out more in the first year.”

Also up for grabs by the Legislature for whatever purpose it chooses is $1.1 billion from a tax on managed care organizations, an expenditure that Brown left unspecified, according to Taylor. In addition, he told the lawmakers that they could decide to siphon off some or all of the $2.5 billion Brown has proposed to spend on infrastructure, including $1.5 billion for state facilities.

Infrastructure Spending

“When it comes to one-time spending, the governor has focused on infrastructure,” said Taylor. “We think that’s a very positive thing. But keep in mind you have other one-time things that you can spend on. We have very high-cost pension and health retiree liabilities that are accruing costs at 7½ percent a year. So you may want to make additional payments to help fund those and pay those liabilities off. There’s no right choice.”

If the lawmakers do decide to spend the money on infrastructure, they should exercise more control on how it’s spent, instead of leaving it to the administration, Taylor said.

“You don’t want to lose control,” he said. “I think you’ve already lost way too much authority for capital outlay projects. You have given it to both university systems and the administration. Stop doing that. I think you should be exerting a lot more control over capital outlay projects.”

But Leno was more concerned about providing enough “human infrastructure” to help the state’s neediest residents.

Social Services Budgeting

“What I’m hearing is regarding developmentally disabled services that housing units are being lost, facilities are being closed,” Leno said. “Employees at the community-based organizations that supply services are leaving because the employees can find much better jobs than the $13-$14 per hour that some are being paid after 20, 25 years of service. What happens to that infrastructure?”

Taylor responded that there’s been a large growth in spending on the developmentally disabled due to the large increases in caseload. “But you can have just about every program and area of the budget come and tell you that they need a lot more,” he said.

Spending on regional centers for the developmentally disabled has grown by 24 percent in recent years, according to Bosler. “This is well beyond caseload and inflation,” she said. Contributing to the higher costs is California’s aging population, which requires more services and support, along with the rise in autism.

But Leno wasn’t satisfied, saying that the cuts made to social services during the Great Recession have yet to be fully restored.

“Do we want to suggest that even in these boom times that this is our new normal?” he asked. “Or do we have a goal of getting back to where we were at least in adjusted dollars to the 2008 level at some point? If not now, then the question is when. It certainly won’t happen during the next downturn, and quite likely we will have to make additional cuts. We continue to create a new normal level funding which is ever, ever lower.”

Power Over the Budget

Nielsen called the budgeting process itself into question, asserting that it gives too much power over spending to the governor.

“We’ve abdicated our authority over the budget,” he said. “I believe that we are almost making the Legislature irrelevant. Maybe we go through the exercise and pound our chest and try to think we’re important. And this has been a steady erosion over a long period of time.”

Taylor responded that budgetary authority is hard to get back after being given away. He cited the state’s ballot measures as contributing to the problem.

“Almost every initiative that has increased a tax in the last 20 years has dedicated the funds for particular purposes,” he said. “From a budgeting perspective, that’s just a terrible development. No matter how well meaning or how well purposed they may have been in the first year that that measure was passed, that’s not what budgeting is about. It’s about changing priorities, as you know, and being able to make decisions.”

Legislative budget committees plan to hold numerous hearings in the coming months to gain more insight into and provide input on the budget before the governor’s planned budget revision with updated revenue and expenditure figures in May.

Among other points, “The 2015-16 Budget: Rethinking How the State Funds School Facilities” pushes the idea that facilities funding should more closely follow each student. Doing so would change the system from its current dependence on local variations largely based on community wealth and support for more school funding.

The report is claiming that reforms need “to get schools out from under Sacramento-related oversight and redundancy,” Bill Lucia told CalWatchdog.com; he’s the president and CEO of EdVoice, a nonprofit reform group, and served as executive director of the State Board of Education.

Lucia said the report works to address Gov. Jerry Brown’s Local Funding Formula reform from 2013, which shifted overall state funding more to schools from low-income families. However, Lucia added, neither Brown nor the LAO report “addresses head on” Proposition 98, the 1988 initiative that mandates about 40 percent of general-fund spending must go to K-14 education.

The LAO, he said, “has put some interesting ideas on the table,” but ultimately “still doesn’t address where the money comes from.”

LAO details

The LAO report said the existing program:

• “fails to treat school facility costs as an ongoing expense despite the recurring nature of facility needs”;
• “allows disparities based on school district property wealth”;
• “fails to target funding according to greatest need”;
• “results in excessive administrative complexity”;
• “lacks adequate accountability mechanisms.”

It notes “the governor indicates a strong interest in changing how the state funds school facilities, though he has not introduced a specific proposal to date.”

And the LAO makes several recommendations for new legislation:

• “establish an annual per–student facility grant”;
• “base the grant on the replacement value of existing school buildings and an estimate of their average useful life”;
• “adjust the grant to reflect local resources, with larger grants for districts with lower property wealth”;
• “adjust the grant during the transition to account for existing state debt service incurred on the district’s behalf”;
• “provide one-time funds to address the existing backlog of facility projects”;
• “require school districts that receive grant funds to adopt five-year facility accountability plans.”

Charter schools

Lucia said the LAO report is “thin” on dealing with charter schools, which are public schools that mostly work outside the state and local schools bureaucracies. According to the California Charter Schools Association, the state now includes more than 1,063 charter schools, teaching more than 484,000 students.

The LAO report explained that in 2001 the state established the Charter School Facility Grant Program “to provide facility funding for charter schools serving low-income students. Charter schools are eligible if they enroll or are located in the attendance of an elementary school where at least 70 percent of students qualify for free or reduced-price meals.”

But for the 2013-14 school year, the state appropriated only $70 million for the program. The money went to 300 charter schools. So the average was $233,333 for each school receiving the money. The amount was increased to $92 million for the current school year, 2014-15.

Bonds

The LAO also warned the state’s bond authority is almost exhausted. The two core programs, new construction and modernization, have been empty since 2012. But $286 million remains in the four bond measures passed earlier: Mainly the money is in three categories:

• seismic repair, $142 million remaining;
• charter school construction and modernization, $99 million remaining;
• energy-efficient schools, $32 million remaining.

Schools still can pass local bonds.

And according to Ballotpedia, a $9 billion school bond has been submitted to Attorney General Kamala Harris for the Nov. 2016 ballot. It is awaiting her title and summary before being circulated for signatures.

A Dec. 2014 poll by Fairbank, Maslin, Maullin, Metz & Associates found such a bond nabbed 63 percent support to 33 percent opposition, with 4 percent undecided. But that’s before any actual campaigning by anti-tax groups worried the bond would lead to tax increases.

Bucks to buildings

A key issue is local control. Currently, wealthy areas generally are more likely than poor districts to approve local bonds or direct taxes to improve school facilities. That’s a problem Brown’s reform has been addressing.

“I agree with the governor on that point,” Lucia said.

Lucia added that, despite the importance of local control, the California Constitution actually guarantees a decent education for every child in the state. He believes the LAO report can help spur reforms that, in particular “streamline” state funding of schools, “eliminate redundancy and bureaucracy” and ultimately “bring more bucks to buildings.”

Regarding the economy, there “is an optimism from small business that hasn’t existed in the past,” said Scott Hauge, president and founder of Small Business California. That’s shown in a comparison of SBC’s 2014 survey of California small business owners with preliminary results from the 2015 survey:

• In the 2014 survey, 49 percent of respondents said California is going in the wrong direction versus 38 percent saying it’s heading in the right direction. In 2015 that has flipped to 48 percent saying the state is going in the right direction and 35 percent saying the wrong direction.
• Last year 34.5 percent felt the economy was poor, with just 16 percent saying it was good. This year 49 percent believe the economy is good with just 13.5 percent saying it’s poor. Last year only 34 percent planned on hiring, versus 43 percent this year.

But when asked about California’s small business climate, the entrepreneurs mostly remained gloomy. In the 2014 survey, 63.5 percent called the small business climate poor, with just 10 saying it’s good. This year 60 percent still consider the business climate poor with 16.5 percent finding it good.

Their gloominess is borne out by the Tax Foundation’s 2015 Business Tax Climate Index. California ranked 48th overall in the country, a lowly position it has held for the last four years. The state was the nation’s worst in income taxes, 42nd in sales taxes and 34th in corporate taxes. Forbes Magazine’s Nov. 2014 business climate survey ranked California 46th in business costs and 43rd in regulatory environment.

Mac Taylor

Legislative Analyst Mac Taylor warned the committee members they need to be careful how their regulations affect the state’s business climate.

“Regulations … are crucial for business,” he said. “You want to always make sure they are smart, that they have good returns, that they are being efficiently done, that they are not excessive, that they are easy for business to follow. So the non-budget aspect is in some ways just as important to business as what happens in the budget. In some ways it can be more important to them.”

Several entrepreneurs pleaded with the committee members to make the state more business-friendly.

Cellpoint Corporation, which repairs cellphone screens, is headquartered in Costa Mesa. But its new manufacturing facility is located in Texas because the companies it serves are there, having been driven out of California, according to Cellpoint CEO Ehsan Gharatappeh.

“I’m always on the road to get this factory up and running,” he said. “It’s not convenient for me, my wife and kids. It would be in my interest to have a factory next to my house. Even if California were to eliminate the state income taxes tomorrow, that still would not be enough to put my manufacturing operations back in California – because all of our customers, Fortune 100 and 500 companies, are there [in Texas].

“In a perfect world, I would love to have some laws … to enable a competitive environment and marketplace in California, where big companies could move back to California and all of the small companies like mine that support them could follow in lockstep.”

Regulations

Key to making the state more economically competitive is to not impose punitive regulations, according to Hauge. “In some cases there are situations where regulations are put forth that the economic impact has not been determined,” he said. “That should be a criterion before regulations are put in effect, to know what the economic impact is.”

Dave Petree, CEO of Cloak and Dagger, a cybersecurity firm, asked for tax relief. “Have a program in place where you would waive state tax for the first two or three years for a startup business,” he said. “That would be contingent on the business staying in California for three years after that or all of the taxes become due.”

Two of the committee members were sympathetic to their concerns and requests.

“Unfortunately, we still have the nation’s third largest unemployment rate at 7.1 percent, which is higher than the national average of 5.5 percent,” said the committee vice chair, Assemblywoman Young Kim, R-Fullerton. “California consistently ranks at the bottom as a business-friendly state because of our high business tax climate. Too often California’s innovations become a reality in other states because we have too many hurdles and financial disincentives.

“By enacting pro-job policies, we can keep jobs and employers here and create more opportunities for Californians. As a Legislature, we need to be mindful of proposed policies that would hurt the economy, make it harder to increase jobs and threaten our future tax revenues. Together we should make it easier and less costly to start or expand a business in California.”

SBA

Donna Davis is the administrator for the U.S. Small Business Administration’s Region IX, headquartered in Glendale. Before the committee, she touted the many programs available to help small businesses. The SBA’s Local Assistance website is here.

Davis has been involved in small business herself. According to the SBA website, “She served most recently as the President and CEO of DIR Group, Inc., a business and advocacy consulting firm.  Before that, she was the CEO of the Arizona Small Business Association”

Also wanting to help businesses, especially small ones in her Inland Empire district, was Assemblywoman Cheryl Brown, D-San Bernardino.

Brown said she has been a small business owner for 40 years. And she responded to Davis’ testimony.

“You’re saying things I don’t know anything about,” said Brown. “We don’t seem to get that kind of support. We’re not seeing the kind of robust success that you’re talking about. Owners will go to the bank and try to get the loan cleared and so forth so they can go back to SBA.

“But the process is so cumbersome that many times small business owners won’t have the time to do that. Additionally, if they get through the maze, then we just don’t have access to capital in that region. That’s something I’m going to be working on.”

The state economy

In addition to his comments on the state business climate, Taylor’s 22-minute presentation provided an overview of the state’s economy and some legislative recommendations:

• California’s gross domestic output of $2.2 trillion places it eighth in the world, ahead of Russia and Italy and just behind Brazil. Texas is the second largest state at $1.5 trillion. “It really just shows that California is an economic powerhouse, not only for the U.S. economy but for the world economy,” he said.
• California lost nearly 9 percent of its jobs during the Great Recession – “that’s just astounding,” he said. It’s taken seven years to recoup those losses, nearly twice as long as the job recovery took after the 2001 recession.
• Sixteen percent of California’s population is poor, according to the official poverty measure (based on data from 2011-13). That’s slightly higher than the national rate of 14.8 percent. But the percentage of Californians living in poverty is actually 23.4 percent when using the Supplemental Poverty Measure, which takes into account government benefits as well as cost-of-living expenses such as housing.
• The cost of housing as a percentage of household income is higher in California than the national average of 23 percent. Southern California has the most expensive housing, led by Los Angeles at nearly 30 percent of income, followed by San Diego at 28 percent.
• California is aging rapidly. The 65-74 age group is by far the fastest growing in the state, increasing by more than 60 percent from 2010-20. Next fastest is the over-75 age group, increasing about 35 percent. In contrast, the 24-and-under age group is declining by about 5 percent. “What that means is that it’s really good for your budgetary situation because you don’t have to spend a lot of money just to keep up with the growing population, building more schools, taking care of more kids,” Taylor said. “You can spend it on other things.”
• California has a $650 billion investment gap in infrastructure over the next 10 years, according to the 2013 U.S. Infrastructure Report Card by the American Society of Civil Engineers, which graded California’s infrastructure a “C.” “Infrastructure is an area where we don’t do as good a job as we should,” said Taylor. “We have a five-year infrastructure plan that the governor puts out every year. But we don’t really follow through on it. The Legislature doesn’t have a strong planning process and a way to make sure that you’re spending your limited funds in the most effective way. You spend about $10 billion a year on average on infrastructure.”

The committee’s future informational hearings will look at specific components of the state economy, said Committee Chairman Eduardo Garcia, D-Coachella.

An accountant — as opposed to a journalist or a partisan, or a journalist/partisan — would be infinitely more inclined to look at the numbers and say Brown is getting credit he doesn’t deserve. This is why it was so depressing to see Legislative Analyst Mac Taylor — who used to seem more like an accountant than a political operator — pretend in November that the state could look forward to years of budget surpluses.

This is why it’s nice to see straightforward news accounts pointing out that all is not remotely well with California’s finances. Take it away, Dan Walters:

“As severe recession struck the nation a half-decade ago, California and most other states borrowed heavily from the federal government to prop up their unemployment insurance programs.

“At one time, the states owed Washington more than $47 billion, but the debt has since been cut by more than half to $21 billion, and many of the debtor states have completely erased their negative balances, according to a nationwide surveyby Stateline, a website on state government affairs maintained by the Pew Charitable Trusts.

“But not California. The state began borrowing in 2009 and accounted for more than $10 billion of the debt at its peak, but it has declined only slightly – thanks to a political stalemate in the Capitol — and California now accounts for nearly half of the national debt total.”

Mac Taylor, civic arsonist

Contrast this with LAO boss Mac Taylor in November. He said multibillion-dollar surpluses could soon be the norm in California because of tough decisions made in recent years — by Brown to hold down spending and by voters to raise taxes.

This is grossly misleading. California has hundreds of billions of dollars in unfunded retirement benefits, liabilities so immense that they make the state debt to the feds seem trivial.

The LAO is California’s most respected government agency. But that is based on previous directors. Mac Taylor will be remembered as the LAO boss who encouraged Californians to believe lazy, stupid budget spin — instead of the previous sort of LAO boss who tore such spin apart.

“SACRAMENTO — While lawmakers begin discussing ways to fix California’s cash-strapped teacher pension system, another long-term financial problem continues to fester.

“The cost of providing healthcare to retired state workers is $64.6 billion more than state leaders have set aside to pay, an increase of $730 million from the previous year.

“The new numbers, calculated as of last June, were released by state Controller John Chiang on Thursday. …

“State workers become eligible, after 10 years on the job, to receive taxpayer-funded healthcare for life. The state picks up an even bigger share of the cost after 20 years of employment. 

“California pays the cost of retiree healthcare directly out of the annual budget. That’s much different from how it handles state pensions, which are largely funded by investment returns on gigantic pension funds.”

New role for ‘watchdog’: civic arsonist

Now let’s revisit what Mac Taylor said last November: At a legislative hearing, he opened his analysis of the state’s fiscal picture by declaring there was a“strong possibility of multibillion-dollar operating surpluses within a few years.”

Yeah, if you ignore CalSTRS’ gigantic and growing shortfall, and unfunded retiree health care, than the state is doing just fine.

And if you leave out what happened that one summer in Hiroshima and Nagasaki, Japan didn’t suffer too much in World War II.

Incredible. How does Mac Taylor sleep at night? He’s a civic arsonist.

As John Myers reported, one of Taylor’s staffers provided key testimony at the hearing, going over findings from a new LAO report:

“[It] concludes that CalSTRS needs $900 million in additional contributions from all sources in the 2015-16 fiscal year, rising sharply to $5.7 billion a year by the summer of 2021. And that’s just to cover current liabilities.

“What happens if lawmakers continue to delay taking action? The LAO report (PDF) pegs just delay beyond 2015 at an additional $150 million a year for the following 30 years … and $300 million a year if waiting just two years beyond 2015.

“The message: the hole gets deeper every year. And it’s a bigger problem than other long-term state debts.

“‘This liability tends to grow much faster,'” said analyst Ryan Miller in Wednesday’s hearing.

‘The state’s structural deficit … is no more’

But then, of course, there is the contrary view that looks at the state’s fiscal future and predicts surpluses for years to come … also courtesy of the LAO:

“’The state’s budgetary condition is stronger than at any point in the past decade. … The state’s structural deficit – in which ongoing spending commitments were greater than projected revenues – is no more.’”

That’s what Mac Taylor said in November in testimony to the Legislature. Evidently, pension debt isn’t an “ongoing spending commitment.”

This isn’t a minor problem — a knucklehead lawmaker mouthing off about a topic about which he knows nothing. This is the head of the state’s (previously) most respected watchdog agency offering a grossly deceptive description of the state’s financial health and providing cover to those who want to ramp up spending.

Taylor should be embarrassed. I’m sure Ryan Miller looks at his boss’ November testimony and feels like throwing up.

Instead of calling for the governor and the Legislature to sharply increase its annual payments to the funds responsible for these liabilities, Taylor called for relatively slight increases phased in for years — increases that are far short of what an actuary would recommend.

It’s as if a family declared its finances to be in great shape so long as one ignored the $500,000 in credit-card debts.

What makes the LAO’s current insanity so tough to figure out? The fact that at other times, the LAO makes powerful arguments that completely counter the budget assertions Taylor offered last month.

LAO: CalSTRS’ debt much worse than Brown’s ‘wall of debt’

For one example, this is from Ed Mendel’s piece on Calpensions.com in March of this year:

“The nonpartisan Legislative Analyst’s Office yesterday recommended that the Legislature adopt a plan to fully fund CalSTRS in 30 years — an estimated cost of $4.5 billion a year, a hefty addition to current annual contributions totaling $5.7 billion. …

“… after years of ignoring a growing CalSTRS debt … the Assembly and Senate public employee retirement committees held a joint hearing yesterday on proposed solutions requested by a Senate resolution last year.

“Ryan Miller of the Legislative Analyst’s Office told the committee that the unfunded liability of the California StateTeachers Retirement System, a century old this year, ‘may be the state’s most difficult fiscal challenge.’

“The analyst said the CalSTRS unfunded liability is twice the size of what Gov. Brown calls ‘the wall of debt’ from years of budgetary borrowing. The governor’s proposed budget spends $56 billion on K-12 funding under the Proposition 98 guarantee.”

Let’s contrast that with what Mac Taylor said three weeks ago in Sacramento at a legislative hearing.

“’The state’s budgetary condition is stronger than at any point in the past decade. … The state’s structural deficit – in which ongoing spending commitments were greater than projected revenues – is no more.’”

Does LAO staffer have a bloody lip?

Huh? So paying the actuarial minimum for retirement benefits that are contractually guaranteed and protected by a welter of state laws isn’t a “spending commitment”?

What’s going on in Sacramento? Is there something in the Capitol water supply? Psilocybin, perhaps?

I wonder how the LAO staffer who correctly warned the Legislature about CalSTRS’ horrible finances in March deals with his boss’s denial and declining math skills. Does he have to bite his lip to keep quiet when Mac talks of budget surpluses as far as the eye can see? Does he chant “om” to maintain his mental equilibrium? Does he furtively scan the jobs.ca.gov site so he can get away from the Lunatic Analyst’s Office?

I’m not being completely facetious here at all. This was the official position of the LAO when the staff was doing the talking, not the boss:

“If the state’s current $1.4 billion annual contribution to CalSTRS were combined with the $4.5 billion additional contribution that may be necessary to achieve full funding in 30 years, the sum would exceed state spending on the University of California and California State University systems combined. The additional CalSTRS contribution alone would represent about one-half of state corrections spending.”

Now the LAO’s position has become “the state’s structural deficit … is no more.”

Wow. And a whole bunch of other less-family-friendly exclamations.