Also published at The Orange County Register
The joy of being a little older is that one has seen a few economic cycles over the decades. This is certainly true for Gov. Jerry Brown, 77, who instinctively knows that after a brief economic boom, another recession is not too far off. The proverbial warning from George Santayana, “Those who cannot remember the past are condemned to repeat it,” is not lost on the governor.
Gov. Brown recently released his “May Revise,” an update to the annual budget plan released in January, to modify projections for rising or falling revenue over the spring months. This year, revenue was rising.
Although this is my first “May Revise” experience as a state senator, I admit to being a bit surprised by Sacramento’s exuberance over the forecast of increased income to the tune of $4 billion to $6 billion – money largely attributable to the 2012 Proposition 30 ballot measure that temporarily raised sales taxes and income taxes. The voters approved this tax increase in order to balance a $26 billion structural deficit plaguing the state and to get more solvent for future economic cycles.
With the state coming off one of the worst recessions in decades, the legislative majority is now overflowing with dozens of new spending proposals, including low-cost tuition, taxpayer-funded health care for undocumented immigrants and additional school spending around the state.
When the May Revise came out, I did what any good accountant would do: I used an industry standard to measure the state’s current fiscal health. I compiled data from California’s Comprehensive Annual Financial Report for each of the past 15 years and provided a spreadsheet reflecting the state’s recent spiral into an unrestricted net deficit.
According to the CAFR, California currently has an unrestricted net deficit of $117 billion. A fiscally healthy state should have positive unrestricted net assets. Even worse, this report does not include the hundreds of billions of dollars in unfunded state employee pension and retiree medical liabilities. Nor does it account for the estimated $200 billion of state infrastructure deferred maintenance.
In accounting language, this means the Golden State is in desperate fiscal shape.
When I released this data to the Capitol community, I got blank stares, as if someone momentarily turned off the music in the middle of a pool party. But, after a brief pause, the party continued.
This is because the Sacramento “spending lobby” is just that: a spending lobby. And our Legislature is like someone who is making minimum payments on maxed-out credit cards and has no savings, yet wants to buy a new car.
In a recent Budget Committee meeting, one Democratic senator opined that “austerity is a choice, not a necessity” shortly before joining the Democratic majority in passing a hugely inflated spending plan – loaded with hundreds of millions of spending beyond Gov. Brown’s budget proposal.
In that same meeting, the chairman of the Budget Committee made it clear that paying down California’s debts was “not a priority.”
As a trained Certified Public Accountant, I see things a little differently than most legislators. I do not focus on where we can spend. Instead, I examine what has been spent, what obligations have been incurred and not paid for, and assess the reality of the state’s financial health.
Our state has structural budget issues that would alarm even the most optimistic shareholders of any major U.S. corporation. Our high debt and looming unfunded liabilities have scared away some of our best job-producing companies. This financial reality simply cannot create the healthy fiscal future that California needs.
The increased projected revenue does not mean our government can ignore or put off addressing the existing fiscal obligations. The sooner California gets its fiscal house in shape; the sooner lawmakers can address other needs that will increase the quality of life for all Californians.
Gov. Brown is making a valiant effort to turn the ship of state to a proper fiscal course. But, if the Capitol disregards the recent past, and continues to increase spending without taking care of its glaring obligations, then California will be doomed to repeat the fiscal mayhem of the recent past. And it will be the taxpayers, once again, who will bear the brunt of this missed opportunity.
Press Contact: Amanda Smith @ 714-662-6050, firstname.lastname@example.org
State Senator John Moorlach is a nationally recognized budget, finance, and fiscal policy expert. Moorlach graduated from CA State University in Long Beach in 1977, passed the C.P.A. exam in 1978, and completed his studies for the Certified Financial Planner designation in 1987. He earned a Certificate in Public Finance from the University of Delaware, Division of Continuing Education in 1995, the Certificate of Achievement in Public Plan Policy (CAPPP) in Employee Pensions in 1999 and the Trustees Masters Program in 2003 through the International Foundation of Employee Benefit Plans, and the New Supervisors Training Institute in 2007 from CA State University in Sacramento in cooperation with their Center for California Studies.