Governor Brown’s Paradoxical State of the State

Photograph: Rich Pedroncelli, Associated Press

 

By Keith Johnson

Gov. Brown delivers contradiction at the State of the State Address .

Governor Brown delivered his State of the State address on January 21. He was steadfast on the ‘Rainy Day Fund’ and warned of a forthcoming recession. As he stated in the 2016-17 budget press conference, the governor emphasized fiscal responsibility. Here are some of the governor’s comments on finances:

“A slowdown in China or turmoil in Iraq or Syria or virtually anywhere can send the stock market reeling and put California jobs and state revenues in jeopardy.”

“I am going to focus on how we pay for the commitments we have already made.”

“What we do know is that since the Second World War, we have experienced 10 recessions, none of them expected or accurately predicted. Economists are unable to pinpoint when a recession will begin or how long it will last. Historically, California budgets have been built around forecasts that assume uninterrupted growth. Just looking at the last two recessions, we notice that ongoing state spending accelerated right into the downturn.”

“That is why if you add up the deficits and surpluses between 2000 and 2016, you find that the total deficits were seven times as large as the surpluses, resulting in painful and unplanned-for cuts. Schools, child care, courts, social services and other vital state programs were deeply affected. So too were our universities which had to reduce classes and double tuition.”

“I don’t want to make those mistakes again.”

“According to economists at the Department of Finance, the next recession, even if it were only of average intensity, would cut our revenues by $55 billion over three years.”

“California has a very progressive but volatile income tax that provides 70 percent of General Fund revenues.”

Author’s note: Please review California’s Comprehensive Annual Financial Report or CAFR.

“We also know that inequality has risen sharply in recent decades. We have seen the disappearance of many middle class jobs and the growing share of income taken by the top 1 percent and even more so by the top .01 percent.”

“Technological change also plays its part through sophisticated software, robotics and global communication. Of course this creates jobs, keeps inflation low and makes available phenomenal amounts of information and undreamed of conveniences. But it also makes for higher pay at the top and a huge number of low-paying service jobs below.”

“As the economic recovery reaches its end point and turns downward, it is crucial that we honestly face and plan for these increased costs.”

These statements are reasonable. How does California remain fiscally responsible ahead of an impending recession? Logic would suggest that spending needs to be curtailed if building a Rainy Day Fund is going to be attainable. Insight into Brown’s fiscal responsibility can be gained from his following statements. According to the governor:

“We raised the minimum wage.”

“We now have our first Earned Income Tax Credit”

“We strengthened our already strong prevailing wage laws”

“We made sure that 6.5 million workers will now get paid sick leave”

“And with respect to helping low-income students, we provide over $2 billion in Cal Grants and we pay the enrollment fees for 65 percent of community college students”

“We have added back hundreds of millions of dollars to our CalWORKs, foster care and child care programs.”

“In May, we will start providing full health care coverage to the children of undocumented workers.”

“…we have expanded this In-Home Supportive Services program by serving more recipients, giving current recipients more hours of care and by giving – for the first time – overtime pay to those workers who provide the services”

“… the passage of Proposition 30 has allowed us to increase spending on public schools and community colleges from a low of $47.3 billion in 2011, to $71.6 billion this budget year. That is a 51 percent increase in overall spending.”

“To date, we have set aside only a token amount to pay for $72 billion in future retiree health benefits.”

“Another long-term obligation we have to face is our deteriorating infrastructure. From state office buildings here in Sacramento to levees and facilities in our parks, universities, prisons and state hospitals – serious deficiencies abound. In this year’s budget, I am proposing that we use $2 billion of our temporary surplus on one-time investments to repair and replace aging structures.We have to recharge our aquifers, manage the groundwater, recycle, capture storm water, build storage and reliable conveyance (code for Brown’s water tunnel project), improve efficiency everywhere, invest in new technologies – including desalination.”

“California … (has) now signed on to Under 2 MOU. The goal is to bring per capita greenhouse gases down to two tons per person. This will take decades and vast innovation.”

Author’s note: According to the document the funding for 2MOU is described as such:

 – Funding California has multiple funding mechanisms to drive emissions reductions and is evaluating others. Cap and trade auction revenue, bonds, ratepayer funds, Property Assessed Clean Energy funding, and on-bill financing are among the mechanisms currently being used.

“Our overall state deferred maintenance is staggering, estimated to total $77 billion.”

“These liabilities are so massive that it is tempting to ignore them. We can’t possibly pay them off in a year or two or even 10.”

“Our retirement liabilities – for pensions and lifelong health benefits for state and university workers – total $220 billion.”

“In four years, total Medi-Cal costs have grown by $23 billion. As the state begins to pay for its share of the millions of new enrollees, the cost to the General Fund will also rise. In 2012, the General Fund paid $15 billion for Medi-Cal, but by 2019, that number is expected to be $25 billion, an increase of two-thirds. For In-Home Supportive Services, in just two years, total spending will jump by $2 billion – to $9.2 billion – a 28 percent increase.”

“..we have wholeheartedly embraced the Affordable Care Act. As a result, we are now enrolling 13.5 million Californians in Medi-Cal and another 1.5 million in Covered California.

“… the passage of Proposition 30 has allowed us to increase spending on public schools and community colleges from a low of $47.3 billion in 2011, to $71.6 billion this budget year. That is a 51 percent increase in overall spending.”

“Our retirement liabilities – for pensions and lifelong health benefits for state and university workers – total $220 billion.”

“To date, we have set aside only a token amount to pay for $72 billion in future retiree health benefits.”

“These liabilities are so massive that it is tempting to ignore them. We can’t possibly pay them off in a year or two or even 10.”

jerry

Photographer: Ken James/Bloomberg

 

The governor speaks of fiscal responsibility. He wants California to save it’s surplus for a rainy day fund, lists hundreds of billions of dollars in spending and admits our liabilities cannot be possibly paid off in ten years. With an inevitable downturn in the economy and looming deficits, where is the Rainy Day Fund going to come from?

In my opinion, this does not add up.

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