Sen. John Moorlach Commends Gov. Newsom's Budget Proposal for Rainy Day Fund, Cautions about Economic Assumptions

Thursday, January 10, 2019

Sen. John M.W. Moorlach released the following statement today in response to Gov. Gavin Newsom’s state budget introduction:

As the only trained CPA in the California Legislature, I am looking forward to working with Gov. Gavin Newsom on his state budget proposal for fiscal year 2019-20. I hope it represents a fresh start for all 40 million Californians and their aspirations. As I do a quick top-line review, here are eight commendations and concerns:

  1. Commendably, the governor makes note that the economy is slowing, so spending must be restrained. I would add that the yield curve is inverted, which usually means an economic slowdown is imminent. Consequently, a total budget growth of 3.2 percent may be an optimistic assumption.
  2. He spends $7.7 billion, “across multiple departments and programs,” on programs to address the state’s homeless and mental illness crises.
  3. He includes $213.6 million for wildfire mitigation and hardening our electrical infrastructure. Almost all that is from SB 901, passed last year, which required $200 million a year for five years from cap-andtrade funds for such programs. I think the amount should be higher, but that’s a start. Given how greenhouse gases from three days of wildfires equal the entire amount of greenhouse gases from all the automobiles in the state for a year, the cost-benefit advantage here is substantial.
  4. It’s excellent the governor is continuing to fill the Rainy Day Fund at $15 billion, slightly higher than the 10 percent of the general-fund budget as required by Proposition 2 from 2014. The budget proposal anticipates that will rise to $19.4 billion in the 2022-23 budget. An economic downturn may be just around the corner. Gov. Gray Davis found out quickly how hard it is to keep money in the bank as he blew through the $13 billion surplus Gov. Wilson left him.
  5. The governor wants to put a one-time payment of $3 billion into CalPERS and $2.9 billion into CalSTRS over the next four years to reduce state pension and retiree medical liabilities. That’s a great start, but hardly adequate to address the growing pension and retiree healthcare costs that state and local governments are now required to acknowledge in their Comprehensive Annual Financial Reports.
  6. On the negative side, the governor missed an opportunity to put money into the Public School System Stabilization Account, also required by Proposition 2. According to the Legislative Analyst’s Office, there is currently no money in the account. My own analysis of school district balance sheets tallies more than two-thirds of school districts running red ink. Many districts, the worst being the Los Angeles Unified School District at $19.6 billion, run deep into the red.
  7. The Governor is acting more like a Chief Executive Officer than his predecessor. Instead of giving the Department of Motor Vehicles whatever it takes to shorten the waiting lines, Gov. Newsom is sending in a strike team and implementing better management practices. This is very encouraging.
  8. Finally, I hope my slowing-economy concerns are addressed in the May Revision of the budget proposal. By then we will better see if the recent downturn in the stock market, especially the sharp decline of Silicon Valley companies, was an anomaly or part of a trend.