California budget forecast nowhere near as rosy as it first seems

  • This artwork by M. Ryder relates to interest rates.

Before anyone in Sacramento breaks out champagne to celebrate the state legislative analyst's forecast multibillion state operating surpluses in coming years, consider his caveats.

Analyst Mac Taylor last week kicked off the debate over the fiscal year 2013-14 budget by announcing that the <WC>state <WC1>Legislature and Gov. Jerry Brown must close a $1.9 billion shortfall. He called it a <WC>"<WC1>dramatic turnaround,<WC>"<WC1> a comment that appeared in news stories across the state.<WC> <WC1>In the myopic world of state budgeting, he's right. When one considers his office's annual projections from the past five years of $10 billion to $28 billion deficits, this year's $1.9 billion looks pretty darn good.

Then, when Taylor projected that by 2017-18 the state would have an operating surplus of more than $9 billion, one could see the needles on the spending tachometers reach the red zone as lawmakers revved their engines.

Let's hope they notice that Taylor was also waving a huge caution flag.

For starters, while a $1.9 billion deficit seems relatively small compared to past years' shortfalls, it's still a negative number. Without additional cuts or revenues, the state will spend more money than it takes in.

That's even after voters this month passed Proposition 30 to raise sales and income tax rates, and after savings from the Legislature's so-called pension <WC>"<WC1>reform,<WC>"<WC1> which was actually closer to a tweak.

Many lawmakers will downplay the 2013-14 deficit and focus on the surpluses projected for the following four fiscal years. Moreover, they will ignore Taylor's warnings that all those numbers assume:<WC>

<BL@199,12,11,10><WC1>Steady growth in the economy and stock prices. Without that, tax revenues will be less. If state revenues grow one-third slower than forecast, 80 percent of the surplus projected for 2017-18 would be eliminated.

<BL@199,12,11,10><WC>N<WC1>o rainy day fund, contrary to the promise made to voters in 2004 when they also approved $15 billion of one-time borrowing. Recall that the money and the accompanying requirement for a responsible budget reserve were supposed to solve our state fiscal crisis and ensure it wouldn't return. (How well did that work out?) Funding the reserve as promised would eat away nearly 40 percent of the projected 2017-18 surplus.

<BL@199,12,11,10>In most cases, no inflation adjustments after current labor contracts expire. It's not likely the politically powerful state unions will go along with that. Adding in a cost-of-living factor would wipe out more than 20 percent of the 2017-18 surplus.

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