Last week the governor’s office announced a budget that he argued would roughly be in balance. “This budget provides long-term fiscal stability on a level that California has not enjoyed in more than a decade,” the governor claimed.
For those caught off-guard by this news, perhaps they shouldn’t have been, as it was in line with the analysis from the LAO (Legislative Analyst’s Office) back in November 2012.
They argued that the “budget situation has improved sharply.”
“The state’s economic recovery, prior budget cuts, and the additional, temporary taxes provided by Proposition 30 have combined to bring California to a promising moment: the possible end of a decade of acute state budget challenges,” they wrote.
They added: “Our economic and budgetary forecast indicates that California’s leaders face a dramatically smaller budget problem in 2013-14 compared to recent years. Furthermore, assuming steady economic growth and restraint in augmenting current program funding levels, there is a strong possibility of multibillion-dollar operating surpluses within a few years.”
Indeed, they argued that “the new Legislature and the Governor will need to address a $1.9 billion budget problem in order to pass a balanced budget by June 2013 for the next fiscal year.”
It was this theme that Mac Taylor, Legislative Analyst at the Legislative Analyst’s Office, took on Monday when they released their analysis of the governor’s budget.
“I think we’re in a very different situation than we have been in the last 10, 12 years,” Mac Taylor said on Monday at a press conference. “When at this time we would usually be sitting around talking about 20, 25, 30 billion dollar deficits and what are the differences in the numbers between the administration and us.”
He noted that fiscal restraint, along with the addition of temporary taxes through Prop 30, had produced a budget that was on the verge of being balanced.
“The Governor’s proposed budget reflects the significant improvement in the state’s finances that our office identified in November. The state has now reached a point where its underlying expenditures and revenues are roughly in balance, meaning that – under our and the administration’s fiscal forecasts – state-supported program and service levels established in 2012-13 will generally continue ‘as is’ in 2013-14 and 2014-15,” the LAO wrote in their analysis released on Monday.
They added, “Because there are still considerable risks to revenue estimates given uncertainty surrounding federal fiscal policy and the volatility inherent in our revenue system, the Governor’s focus on fiscal restraint and paying off debts is appropriate.”
On Monday, Mr. Taylor and LAO Office signed off on the budget.
“We think that the Governor’s proposal reflects that kind of fiscal discipline,” Mr. Taylor said. “We think that he should be commended for the plan that he has put before the legislature.”
“It has very few augmentations of new policy proposals, it continues to make payments of debt, the biggest ones being on school deferrals,” he said. “It actually pays down some special fund loans, and more importantly it continues to stress the importance, over the fiscal outlook, of the next few years, that you plug in additional payments to get those budgetary obligations off the books.”
According to the LAO, “Similar to our November 2012 forecast, this latest package reflects a significant improvement in the state’s finances, due to the economic recovery, prior budgetary restraint, and voters’ approval of temporary tax increases. Specifically, the Governor proposes $138.6 billion in General Fund and special fund spending in 2013-14, up 4.5 percent from 2012-13. The administration forecasts that the state’s General Fund budgetary balance will be $1 billion at the end of 2013-14 under the Governor’s plan.”
The budget contains major proposals in education, including a new formula for financing schools and additional General Fund resources for the public university systems.
The LAO notes that this budget marks a transition from multibillion dollar annual deficits to “baseline budgets.” They wrote, “Over the past several years, each January Governor’s budget has included billions of dollars in proposed solutions-expenditure reductions, revenue increases, borrowing, and other actions-in order to close budget shortfalls. Now, however, the state has reached a point where its underlying expenditures and revenues are roughly in balance.”
“The Governor’s emphasis on fiscal discipline and paying off the state’s accumulated budgetary debts is commendable, especially in light of the risks and pressures that the state still faces,” they wrote.
They do strike a cautionary note, noting, “There are still considerable risks to revenue estimates, given uncertainty surrounding federal fiscal policy and the volatility inherent in our revenue system. In addition, under the Governor’s multiyear plan, the state would still have no sizable reserve at the end of 2016-17 and would not have begun the process of addressing huge unfunded liabilities associated with the teachers’ retirement system and state retiree health benefits.”
They wrote, “As such, the state faces daunting budget choices even in a much-improved fiscal environment.”
“This sort of approach, in our view, is really critical because we still face a lot of risk, and one of the most important ones that we identify in the report is something over which we have almost no control: What happens at the federal level,” Mr. Taylor said.
—David M. Greenwald reporting
I bought a huge expensive house in a gated community, where I have lots of parties with my friends.
I go out to dinner every night, and take all my friends.
I lease several new luxury and sports cars every year, and let my friends borrow them.
I take lavish vacations several times a year, and take all my friends.
I have accrued so much debt I am at risk of losing it all.
So, I encouraged my friends to raid the homes of my neighbors to shake them down for cash.
Thankfully I now have enough money to eventually pay off my debt while continuing my lifestyle.
Life is good!
“We think that the Governor’s proposal reflects that kind of fiscal discipline,” Mr. Taylor said. “We think that he should be commended for the plan that he has put before the legislature.”
“It has very few augmentations of new policy proposals, it continues to make payments of debt, the biggest ones being on school deferrals,” he said. “It actually pays down some special fund loans, and more importantly it continues to stress the importance, over the fiscal outlook, of the next few years, that you plug in additional payments to get those budgetary obligations off the books.”
——
Arguably this is the most fiscally conservative governor in decades.
I’m waiting for Rusty to post from last year’s article about how this is a sham budget before commenting…
[i]Arguably[/i]
That is the word.
And even if there is agreement, there isn’t much in the way of fiscal conservatism to compare him to. IMO, Brown is still much too fiscally liberal given the times.
What part of “unsustainable public sector pay and benefits” does he not understand?
While the Democrats and California liberal media wee-wees up the celebration over a balanced budget, they of course will not pay attention to the hits to the private economy. Here is what I expect… California will continue to lag behind states like Texas in economic recovery and job growth. And, Californians will more and more have to look to a growing nanny government to help them survive. This then cements that symbiotic looter-moocher relationship that lefties require to retain their power. Because, the absolutely worst type of voter for the political left is one that earns his own prosperity in the private economy through his own hard work, risk-taking and self-determination. The good news for Democrats is that their politicians are effective in reducing the numbers of these voters.
Hi Siegel, good buddy. Did you miss me? Here’s a more objective view:
[url]http://www.calwatchdog.com/2013/01/15/lao-whitewashes-gov-browns-rosy-budget/[/url]
Why is a right wing publication a more objective view than the non-partisan LAO (who has been very critical of past budgets)?
I’m non-partisan too. Just because I say so on my facebook page!
I’m not following you. What does that have to do with the LAO? Mac Taylor has been an equal opportunity basher of Democratic and Republican budgets alike. I’m hard pressed to think of another budget he approved of.
From the article that Rust49 posted…
[quote]Taylor admitted that, even with fiscal discipline, the governor did not address the state’s retirement obligation — a $500 billion unfunded pension liability. Taylor mentioned concern with the growing state teacher retirement fund.
He acknowledged that many of the reporters present had written stories questioning the gaping difference in the LAO’s projection of a $1.9 billion deficit, and Brown’s projected balanced budget and surplus. Taylor explained that, while Brown’s administration and the LAO were still far apart in budget projections, the Department of Finance did a better job this time around bringing their lofty projections back down to earth.[/quote]
[quote]Taylor said that the choice is paying down the debt, versus adding new revenues, but not both.
Taylor noted that the wall of debt was not included because “we know what the numbers are.”
[/quote]
Sounds like subjective opinions and mumbo jumbo to me.
Hey Taylor… How about just doing the damn math like you are paid to do!!!
[i]California will continue to lag behind states like Texas in economic recovery and job growth. [/i]
Texas, as of 2012, had the third-highest debt in the country, right behind California and New York.
Some pension reform was achieved last year in California, although the governor didn’t get everything he wanted. I can’t think of a recent governor who has tackled all these issues and made this much headway. So I’m not sure exactly what you want here.
Calpers reported a 13% return on invested capital for 2012. The $500 billion unfunded liability figure uses the 30 year T-Bond rate currently around 3% as the rate of return on invested capital. I believe for smoothing purposes Calpers uses an estimated 8.5% a difference of about $12.5 billion/year. So it seems your $500 billion pension unfuded liability figure is too high.
The problem is that you guys want to make California’s financial problems worse than they need to be. They were always small relative to the size of the states economy, the worlds 9th largest. The sad part is that if the Republicans had not embraced Grover Norquist’s No-Tax Pledge they could have solved the problems more equitably than what they ended up with by refusing to negotiate better solutions forcing Brown to go to the initiative process. If the Republicans had not done so, abusing the 2/3 rule, to hold the state hostage they might also have avoided super-minority status with only 11 Republicans in the State Senate. C’est la vie.
On a related note, “(CBS News) LOS ANGELES, Calif. – The Golden State is striking it rich in job creation…
..In the past year, California has added 26,000 new information technology jobs. The construction industry is also booming with 26,400 new jobs, and tourism and hospitality has added 62,900…
…During the recession California was losing jobs to states with lower corporate and income taxes such as Texas. Since February California has created almost 234,000 jobs, more than Texas, Oregon and West Virginia combined.”
http://www.cbsnews.com/8301-18563_162-57562186/california-leads-nation-in-job-creation/
“Since February California has created almost 234,000 jobs, more than Texas, Oregon and West Virginia combined.”
LOL, I thought this was a strange combination of states. Texas was the biggest job producer, and West Virginia was the biggest job loser. So in order to get the California job numbers to pass Texas the biased CBS News had to bring down the Texas numbers by combining them with a loser.
G and G: This was all before the tax increases.
If I am wrong, then I will admit I am wrong. I think California has an attraction and there are people that will pay the premium to live here. However, I think we have reached a point now with California having the highest income tax, one the highest corporate taxes, and the highest sale tax… will cause a slower recovery to occur and slower growth.
It is not that incremental tax increase that is the basis for decision, it is the total marginal tax expense weighed against the alternatives. And the Brown tax increases just pushed it over the top.
If you have a business and you could located to California or Nevada or Texas, this tax increase just made it much more likely you would NOT select California.
[i]LOL, I thought this was a strange combination of states. Texas was the biggest job producer, and West Virginia was the biggest job loser. So in order to get the California job numbers to pass Texas the biased CBS News had to bring down the Texas numbers by combining them with a loser.[/i]
Rusty, good work. I knew this was fishy, but did not have time to do the data checking. My guess is that the Democrats just gave CBS News the talking points that they ran with them.
The mainstream media is so corrupt that we are better off believing the opposite of what they report.
How many jobs were created in Texas since February 2012?
How many jobs were created in California since February 2012?
Let’s go back a few months.
August 2012, Texas Monthly:
[i]”In the twelve-month period ending in July, California added 365,100 new non-farm jobs to Texas’s 222,500, according to the Bureau of Labor Statistics.” [/i]
Maybe you have more current figures to prove that “the mainstream media is so corrupt”?
Texas population = 25 million
California population = 38 million
Texas unemployment rate = 6.2%
California unemployment rate = 9.8%
Texas GDP growth 2011 = 3.3%
California GDP growth 2011 = 2%
Texas GDP growth 2009-2010 = 2.8%
California GDP growth 2009-2010 = 1.8%
The year in question is 2012, not 2009 to 2011, right?
Jeff: none of those numbers disproves the statement that California created more jobs than Texas in the time period that CBS News was reporting.
Here’s Nov. 2011 to Nov. 2012 job creation
CA…………+265,900
Texas………+273,800
West Virginia..-13,500
Don, you’ve got to admit that was a strange combination of 3 states to lump together, obviously there was an agenda.
[url]http://wpcarey.asu.edu/bluechip/jobgrowth/JGU_States.cfm[/url]
All of those years are valid because they demonstrate a trend.
Don, Texas has 64% the population of CA. I guess you can say that job growth for both was about the same as a percentage of population.
The main reason CA added more jobs is that Texas cut gubment jobs while CA added them. Let’s just count the private sector jobs.
Jeff: “The main reason CA added more jobs is that Texas cut gubment jobs while CA added them. Let’s just count the private sector jobs.”
Jeff, Texas still added more jobs than CAS according to the latest chart I could find which is more up-to-date than Don’s figures.
[i] Let’s just count the private sector jobs.
[/i]
Why?
[i]”…obviously there was an agenda.”
[/i]Or maybe they were using the older numbers; hard to say, since I didn’t see their sources. Not too long ago, West Virginia was actually showing a lot of job growth.
Jobs due to oil went up in Texas, then down.
Jobs due to housing went down in California, then up.
Public sector jobs in Texas went down, public sector jobs in California went up.
[i]Let’s just count the private sector jobs.
Why?[/i]
It gets back to the point at hand. Government jobs do not contribute to the GDP. They are in fact largely anti-GDP. They are funded by dollars taken from the private economy. California can hire one million gubment employees to secure bragging rights for having the highest job growth. But it would be a fake indication of economic growth unless gubment was actually taking over ownership of private industry.
Listen, I live in California and like California. It is a more beautiful state than Texas. It has better weather. California people – although more weird – are generally more interesting and likeable. Not that Texas is a bad place to live, but I like California better.
The issue isn’t likeability, it is economic sustainability. California’s budget is not sustainable because California gubment spends too much. Combined with that problem… California’s new highest in the country tax rates will drive away too much revenue-generating economic activity. That is the problem… too much spending, too high taxes, and too little taxable economic activity. Because of these three things, Texas kicks California’s ass.
[i]”Government jobs do not contribute to the GDP. They are in fact largely anti-GDP. They are funded by dollars taken from the private economy…”[/i]
That is not even remotely true, and you know it. Remind us: what exactly is it you do for a living, Jeff, and where do those dollars come from?
California laid off a lot of teachers so I’m not sure about that adding public sector jobs versus private sector jobs thing. Do you have a source?
Public sector jobs can be re-distributive especially when deficit financed during counter cyclical downturns. You have got to stop drinking that Fox brand kool-aid. The California economy is past the bottom as long as the credit of the USA is not breached.
Government is a huge driver of the economy, one of many significant factors in GDP, and public investments accomplish development and growth that private enterprise either wouldn’t or couldn’t. Dams, roads, water projects, universities, military spending, public safety employees, NASA. Providing cheap water so farmers can produce specialty crops for export; exports directly affect GDP. Providing funds for small business loans. I could go on and on. Government spending, which entails jobs, contributes to GDP. No question. Of course tax dollars are the source of government spending. But in the instances I’ve described, it either augments existing private investment or spends where private investment wouldn’t.
A reasonable conservative focuses on the degree, and urges more restraint. To deny the function and value of government in the economy is unreasonable.
The GDP represents the total dollar value of all goods and services produced over a specific time period. The government SBA loan program my private non-profit employer participates in is zero subsidy… meaning the program is self-sustaining and does not cost the tax-payers a dime. Note that I am not a government employee. However, the SBA employs people that are required to manage, oversee and facilitate the program. Again though, the cost of these employees is largely covered by the fees paid by the ultimate recipients of the program.
This is a unique situation. I would like to see many more business-facing government programs designed and run like this… a private-public partnership where the private side generates all or most of the revenues that funds the public side.
The problem with you attributing government employees as contributing to the GDP is that, in almost all cases, their pay and benefits require government to take from the GDP. However, I certainly concede that government buys things from the private economy and therefore contributes to the GDP. But again, the government did create value using raw materials without first taking from others that did.
Getting back to my point (because it seems that you don’t want to acknowledge it)… Texas’s economic recovery and employment picture has been demonstrably much stronger than California. Using government jobs in the employment numbers to make a case that California is doing better or even well is disingenuous given the fact that we are still dealing with a HUGE unsustainable debt of public sector pension commitments. In fact, since these pension commitments have not been sufficiently dealt with, every new government employee just exacerbates the problem.
Every year since 1980 Texas has had a higher poverty rate than the US….the highest poverty rate of any large industrial state.
In 2007, prior to the recession, poverty rate was 16.7% (California 12.7%, New York 14.3%, and Florida 12.5%).
In 2007, Texas ranked ninth in its poverty rate for the elderly; it ranked forty-ninth in the percentage of its adult population with a high school diploma; and it ranked first, at 24.4 %, in the percent of its populace with no health insurance.
23.8% of all poor Texans are Anglo, and 15.8% are African-American, but well over half (53%) are Hispanic.
Texas has one of the worst income disparities in the nation. In the early 2000s, the income gap between the richest 20 percent of families and the poorest 20 percent in Texas was the second largest in the nation.
Over many years, Texas has been very low on social welfare spending in the categories of cash assistance, Medicaid, and social services.
Compared to other states with low rates of spending on social welfare, Texas has a much greater ability to do so (higher fiscal capacity).
Bottom line:
Texans value wealth creation and don’t value helping their poor.
[i]However, the SBA employs people that are required to manage, oversee and facilitate the program.
[/i]
Would that program exist in the private sector? Not a rhetorical question; I’m actually asking if SBA is providing a funding mechanism without competing adversely with private lenders.
[i]Texans value wealth creation and don’t value helping their poor.[/i]
Talk about a generalization.
Great, our leftist Federal Government fails to stop the flow of millions and millions of poor and uneducated Latino immigrants that flood our border states, and now it is those states’ problem that it doesn’t give them enough free stuff so that they no longer fall into the “poor” category. You guys on the left have all your bases covered, don’t you? Well, not the base that ensures you never run out of other people’s money.
Texans better value earned prosperity by self-determination. They reject the Greece, Spain and Portugal-style approach for obvious reasons. They also see California as a looming train wreck.
[i]Would that program exist in the private sector? Not a rhetorical question; I’m actually asking if SBA is providing a funding mechanism without competing adversely with private lenders.[/i]
No, this program requires partnering with a private commercial bank. The bank does 50% and is the first lien holder; SBA takes a second position with a 40% loan. The borrower puts 10% down.
The guaranty is the 50% LTV that the bank enjoys. This allows the bank to lower the interest rate charged the borrower, and does not impact their loss reserves because the collateral value more than covers the debt.
The funding of the 40% loan is done through a debenture bond sale that has that an explicit guaranty from the government. However, any program losses from loan liquidations are covered by the program fees.
I would like to see more of our government programs work in a similar way… public-private partnerships. For example, I would like to see education structured similarly where private companies provide the end-user services, and the government certifies and partners with these private companies to target the mission and service orientation.
I owe a correction after believing something I read from what I thought was a reputable source.
It is clear that California’s job growth since the great recession has been entirely in the private sector. The latest jump is in the construction and IT fields. My point in comparison to Texas was that Texas cut more government jobs over the last few months as part of their budget deficit problem-solving… something that California should be doing MORE of. So, so my point was that California’s job growth is larger only because Texas is taking a more realistic stance on unsustainable government spending… and laying off more government workers.
However, this turns out to be wrong.
Texas did begin to cut government jobs faster than did California in response to the recession, but Texas has been adding government jobs since then.
But to do any valid comparison of state job growth, we need to use the rolling 12-month statistics to control for seasonality.
From BLS data [url]http://www.bls.gov/eag/eag.ca.htm[/url]
Texas’s November 2011-2012 change in non-farm jobs was 2.6%. For the same 12 month period Texas’s government jobs decreased 0.7%. For comparison, a year ago in November 2011 the 12 month change in government jobs was -2.8%.
California’s non-farm jobs increased 1.9% from November 2011-2012, and during that same time, government jobs decreased 1.4%. California’s 12-month rolling government job cuts have stayed pretty consistent in the .9% to 1.6% range for the last two years.
So even though California still lags behind Texas in trends for job growth, California is doing a better job cutting government jobs.
Now, in terms of the magnitude of each state’s budget deficits, one can make the case that California NEEDS to cut more government jobs. Frankly, both states are doing too little to cut government payroll in my opinion.
However, none of this really matters in relation to the point of the article and the points made about the economic impacts of the Brown tax increases. We will not see the results of that for the next several months. My expectation is that Texas will continue to beat California on economic growth and job growth as more business and wealth flees the higher taxes.
And this was happening before the Brown economic activity cuts (otherwise known as tax increases)…
[quote]The Texas economy grew 3.3 percent in 2011, and the growth was broad-based. Not just oil, not just manufacturing. Texas now accounts for 8.7 percent of the nation’s economy, up from 7.4 percent a decade ago.[/quote]
Interesting update. I remember reading a year ago as Texas grappled with its budget that there were going to be significant teacher layoffs. Then a followup recently showed those hadn’t really happened.
As to the previous poverty discussion and the impact of immigration…
Illegal immigrants per state, from Pew:
California 2.5 million, 9.3% of the labor force.
California total population 37,691,912 = 6.63% of the population
Texas 1.8 million, 8.7% of the labor force.
Texas total population 25,674,681 = 7.16%
Poverty rates in 2012 (using traditional measure)
California 16.3%
Hispanics: 22.8%
Whites: 9.5%
Texas 17.9%
Hispanics: 26.8%
Whites: 9.5%
If you want to spend money on social welfare programs, as Californians do, you have to raise revenues for it somehow. What I preferred about the governor’s approach was that it split the difference between higher income tax rates and higher sales tax rates. So everyone pays, at least somewhat. I have come to the conclusion that we, in blue states vs red states, really do have different values about many things. And the governments we elect reflect those values. Brown said he would take it to the voters; he did, and against high odds they agreed with him. He’s doing what he said he would do, and in a manner that is fiscally conservative by California standards.
Thank you for explaining the SBA. I have never known how it worked. It sounds like a balance approach that uses government resources effectively.
[i]It sounds like a balanced approach that uses government resources effectively and could be a model for other programs. [/i]
I agree.
And related to that, SBA just decertified one CDC in our industry for bad business practices (basically taking too many credit risks).
[url]http://www.bizjournals.com/sacramento/news/2012/12/17/sba-shuts-down-resource-capital.html[/url]