California Gov. Jerry Brown knows just what to do with a state budget surplus
posted at 7:21 pm on January 9, 2014 by Erika Johnsen
This is a story from the New York Times in September of 2012, around the time that California Gov. Jerry Brown was cobbling together his plan to tackle the “wall of debt” facing his state and just before voters elected a Democratic supermajority and approved the tax-hiking ballot provision, Proposition 30.
Gov. Jerry Brown of California announced when he came into office last year that he had found an alarming $28 billion “wall of debt” looming over the state, which had to be dismantled. …
On Thursday, an independent group of fiscal experts said Mr. Brown’s efforts were all well and good, but in fact, the “wall of debt” was several times as big as the governor thought.
Directors of the State Budget Crisis Task Force said their researchers had found a lot of other debts that did not turn up in California’s official tally. Much of it involved irrevocable promises to provide pensions to public workers, health care for retirees, the cost of delayed highway maintenance and an estimated $40 billion bill to bring drinking water up to federal standards. …
The task force estimated that the burden of debt totaled at least $167 billion and as much as $335 billion. Its members warned that the off-the-books debts tended to grow over time, so that even if Mr. Brown should succeed in pushing through his tax increase, gaining an additional $50 billion over the next seven years, the wall of debt would still be there, casting its shadow over the state.
Nutshell version: California has up to $335 billion in liabilities, and even the long-term results of the surplus Gov. Brown was planning on won’t be nearly enough to address the state’s systemic spending and debt problems — and this is to say nothing of the multiple municipal bankruptcies in the state over the past few years, nor the $70-billion-and-counting high-speed rail project on which Brown is refusing to cut the state’s losses before things really start to go downhill.
It’s now been over a year since that article appeared, and the first round of that state surplus is coming in (administration officials expect a $4.2 billion total surplus come June) — but what is Gov. Brown planning to do with it? Grow the state’s annual general-fund spending by more than eight percent to almost $107 billion, of course:
Soaring revenue from an improving economy and voter-approved tax increases have put the nation’s most populous state in the rare position of having a projected multibillion dollar budget surplus, a financial surprise that has fueled the big-spending dreams of Democratic state lawmakers. Brown proposes an 8.5 percent boost in spending from the current year’s budget, but also takes aim at nearly $355 billion in unfunded liabilities and debts.
“In the face of such liabilities, our current budget surplus is rather modest,” the governor wrote in the leaked budget summary. “That is why wisdom and prudence should be the order of the day.”
His budget proposal for the 2014-15 fiscal year dedicates $11 billion to paying down the debts and liabilities. That includes $6 billion in payments that had been deferred to schools and nearly $4 billion to pay down the so-called economic recovery bonds left over from administration of Gov. Arnold Schwarzenegger.
The document notes that the state’s revenue surge is due mostly to volatile sources, including capital gains and higher income taxes from Proposition 30, Brown’s tax initiative. Some $4 billion in extra revenue alone will come from capital gains, driven largely by the soaring stock market.
Granted, he is emphasizing the need to start paying down their debts, and he’s going to have to defend even this modest payback proposal from the apparently depraved and full-on Democratic legislature gunning for even higher spending increases — but it’s still a relatively craven proposal in the face of California’s dire fiscal situation. California politicians seem to be happy to pat themselves on the back about the whole thing, but I do not see this ending well at all.