South San Francisco, CA January 11, 2017 Rebroadcast from San Mateo Daily Journal
California has come a long way since the yawning budget chasms of 2008-2012 and has actually enjoyed a four-year stretch of balanced budgets with some money put away toward a Proposition 2-mandated 10 percent rainy-day reserve. Still, even with another deposit into the state’s rainy-day fund, we will still be under our requirement.
Gov. Jerry Brown is also stating that there is a shortfall reaching $2 billion in this year’s budget, which needs to be rectified while also finding room to place money into the rainy-day fund.
In recent history, times of balanced budgets have been followed by tremendous deficits though there is nothing absolute to indicate any pending shortfall will be like what the state experienced from 2002-2006 and 2008-2012 during two periods of severe economic downturns.
Yet the lesson we collectively learned from those two trough periods is that there is a critical need to put money away toward a rainy-day fund, and we will be just more than half-way there at the end of the next fiscal year.
With tax revenue showing signs of weakness, along with the threat of federal changes to health care laws, there are enough warning signs that now is not the time to engage in additional spending. In fact, quite the opposite is true — before we reach conditions that could merit dipping into the reserves to balance the budget.
That is one reason why we have strongly encouraged the state to provide for a rainy-day fund since the economic downturn of 2001-02. The state’s boom-and-bust cycles are too acute to engage in any other form of fiscal behavior. Unfortunately, it was just recently in 2014 that California voters put the concept into law with Proposition 2. However, it is also important to note that the rainy-day fund is not the panacea to any future budget woes, or on a grand scale a collapse of our economy. It is simply a salve to help future cuts from becoming more severe.
And with revenue trajectory starting to turn sideways instead of up, the governor is right in strongly suggesting that spending remain low.
It’s a bitter pill to swallow for those in the Legislature who face calls from their constituents and also interest groups for new spending on key programs to meet a wide breadth of needs from housing to social services and health care and even education.
Additionally, and this is always a sore subject for those in a variety of positions, the state is facing a growing wall of debt related to previous borrowing and retirement liabilities, which is largely a carry-over from the budgetary shell games of years past and unsustainable worker contracts from as far back as the late 1990s. Climbing this wall is no small task, and every effort should be made to reduce it as quickly as possible.
California is in decent financial shape and the governor has been incredibly cognizant of the potential for that to turn quickly. He has also proven responsible in acknowledging the impact of previous decisions on the state’s overall budget situation and its lingering impacts. When he started this tenure as governor, the state was facing terrible deficits. Now that the financial situation has turned around, yet showing signs of weakness, this is a time for resolve and fiscal conservatism and Brown has proven to be good at both — much to the state’s benefit.
– See more at: http://www.smdailyjournal.com/articles/opinions/2017-01-11/editorial-a-practical-and-serious-state-budget/1776425174109.html#sthash.YXSegRrO.dpuf
COMMENTS (from SMDJ online forum)
Christopher Conway
Tax revenues are expected to be up 3% in the state of California and the economy is humming. What is concerning with that good news is we might face a $2 billion deficit. Only in California could you have an increase in revenues and at the same time forecast a deficit. An ominous sign when the California economy eventually cools. This is exhibit one when making a case on how bad the liberal Democrats have messed up this once great state. The only problem with the California values the Democrat super majority profess, it always involves someone else’s money not there own. Just wait until the Federal government takes their money away from California due to the cancellation of the ACA and penalization for illegal sanctuary cities. Lastly, the budget doesn’t even deal with the elephant in the room, $500 billion in unfunded liabilities. California values=the poor house for the state.
Great review. Thank you!