California is collecting so much of your money it can’t save it all

California’s swelling budget reserves are approaching a point where the state by law can’t save any more money ‑ but don’t expect a tax rebate.

The state is quickly filling up its so-called rainy day fund, the budget stabilization account voters created in 2014 when they passed an initiative that forced lawmakers to save money in flush years. Gov. Jerry Brown’s budget proposal puts the state on pace to fill it with $13.5 billion by July 1, 2019, but the milestone could come even sooner.

By law, the fund can only hold 10 percent of the state’s projected general fund revenue as a hedge against the cuts that would come in a recession. Any additional revenue has to be spent on infrastructure.

If the revenue keeps pouring in, Legislative Analyst Mac Taylor told senators earlier this month they’ll have a lot of options. The money “will be there for you do whatever you want to do with it, build reserves, tax cut, whatever you want to do.”

But, in one of those only-in-California budget formulas, filling the rainy day fund presents a different kind of problem for legislators. …

Click here to read the full article from the Sacramento Bee

California Should Reduce Legislature to Part-Time

Photo courtesy Franco Folini, flickr

Photo courtesy Franco Folini, flickr

When the Legislature finally adjourned at the end of August, it again screamed the need for a return to part-time operations. The “reform” of the late 1960s that imposed a full-time gathering of busybodies in the Capitol was one of the state’s biggest mistakes.

Misguided voters passed Proposition 1A in 1966, the same year they put Ronald Reagan in the governor’s chair. The first thing the new full-timers did was pass a massive tax increase. Reagan had campaigned against any tax increase. He broke that pledge and signed $1 billion in higher taxes, equivalent to something like $20 billion more today, the highest state tax increase in history.

Fast-forward to 2016 and the Legislature passed one absurd bill after another, many supposedly “helping” the poor, but actually hurting them. The farm worker overtime bill has been covered by my colleagues and I here at Fox and Hounds.

Another one was the cap-and-trade deal, as reported in the Los Angeles Times, which would “spend $900 million on programs to reduce greenhouse gas emissions …. The money will go toward subsidies for electric cars, new park space and pedestrian-friendly affordable housing. California’s 4-year old cap-and-trade program raises money from businesses that purchase permits to pollute.”

Supposedly the “program” dedicates the money toward such allegedly pollution-reducing actions. But in government, all money is fungible. With legislative legerdemain, it would be possible to switch the $900 million to pay, for example, for some of the $250 billion in the state’s unfunded pension and medical care liabilities.

It also is absurd to think the state can reduce “greenhouse gas emissions” when, according to the Guardian, “1,500 new coal plants are in construction or planning stages around the world,” although only half might be built. “However, 84GW of plants (about 85 stations) were built in 2015 and new plants are being commissioned at five times the rate that old plants, such as those in the UK, are being retired.”

The electric car subsidies largely go to rich Tesla drivers, with the cost picked up by poor people forced to drive long distances in old cars because housing is cheaper away from the expensive, job-rich areas along the coast.

New parks might be nice, but why not let localities decide that? And how will the money be spent? Remember the parks scandal where the director, as AP reported, “sat on nearly $54 million in surplus money for years while parks were threatened with closure over budget cuts”?

But the most absurd part of the cap-and-trade flim-flam was “pedestrian-friendly affordable housing.” Where will poor people park their cars? Once again: Because coastal areas are prohibitively expensive, poor people either bunch up in homes, often illegally; live far from jobs and drive long distances; or sleep on park benches.

If the “pedestrian-friendly affordable housing” is erected in coastal areas, and the homes are nice, that’ll be another manipulation of housing prices – which always means overall higher prices. Take New York City – please. Massive subletting has led to spying on tenants. One supervisor just was fired for refusing to spy.

If the Rotten Apple just would end all rent control, money would flow in to build new apartments, the greater supply then would reduce overall prices. Oh, and rent control there was a “temporary” expedient during World War II. City politicians haven’t heard that Hitler blew his brains out 71 years ago.

Back to the part-time Legislature. An initiative last was advanced in 2012, but never made it to the ballot. And before that, in 2009, an analysis by Legislative Analyst Mac Taylor found, “Potential annual state savings of tens of millions of dollars.”

As they say in Hollywood: Time for a reboot. Ideal time: November 2018 ballot.

Longtime California journalist John Seiler’s email is:

This piece was originally published by Fox and Hounds Daily

CA Analyst Warns Against Budget Spending Spree

With California’s state budget in the best shape in years, Democratic legislators are eager to open the spending spigots. But they were cautioned at an Assembly Budget Committee hearing Jan. 15 that the good economic times could end as quickly as they began, plunging the budget back into the red.

Legislative Analyst Mac Taylor warned the committee that California’s budgetary revenue is among the most volatile in the country for fiscal year 2015-16, which begins on July 1.

As a result, he considers the $3.4 billion rainy day reserve fund in Gov. Jerry Brown’s $113 billion budget proposal to be minimal. He’d prefer a 10 percent reserve.

“You need to think in terms of having a large reserve,” Taylor said. “I appreciate the pressures that you have on you from various groups. I would hope that that [$3.4 billion reserve fund] would be sort of a floor and hope that maybe you could build on that.

“Because a downturn is coming in the near future. We don’t think it’s next year. California is growing well, but things can happen. And the more that you have the reserve, the less disruptive it is to you in making these sort of terrible short-term budget adjustments.”

That downturn is overdue, warned Keely Bosler, chief deputy director of the California Department of Finance. She noted that the country is “nine months past the average length of an expansionary period in the post-World War II era. Our economic forecast does not predict a recession, but economists rarely do. So there is a threat. The economy does continue to grow at this time, though.”


Committee Vice Chair Melissa Melendez, R-Lake Elsinore, argued the rainy day fund should be much larger.

“The bipartisan new rainy day fund will accumulate a portion of volatile capital gains revenue so that we can use these funds during the next recession when Californians need services most,” she said. “However, it may not be enough. The governor proposes savings that amount to 2 percent reserve of all expenditures. In 2008-9 alone general revenue dropped 20 percent.”

Melendez also believes the state should prioritize taking care of its existing obligations.

“The governor has been a vocal advocate of paying down debt,” she said. “And for that we are very pleased. This budget proposes debt payments to our schools, cities and counties. Yet even under this proposal, we are concerned that we may not be eliminating enough debts and liabilities. Hundreds of billions in pensions and retirement liabilities loom, and repaying these needs to be a priority.”

There are additional constraints looming on the budget. Bosler noted state budget revenue will be taking a hit when the temporary Proposition 30 quarter-cent sales tax and “millionaire” income tax hikes begins phasing out at the end of 2016. “The budget is precariously balanced, especially over the forecast period, which is through 2018-19,” she said.

“But also over that same forecast period we are also going to be facing increased expenditures in the state’s general fund. One of the larger ones is the fact that we will be taking on a share of costs of the optional Medi-Cal expansion that was a part of the [Obamacare] health care reform. And those costs will be a billion dollars by the end of the forecast period.”

More than 12 million Californians, nearly a third of the state’s population, are projected to be receiving Medi-Cal benefits in the coming year, Bosler said. “Also, we’re seeing increased costs in that program, mainly related to administrative actions taken by the federal government.”

The state plans to spend an additional half-billion dollars in the coming year to fight wildfires caused by the ongoing drought, she said. And hundreds of millions more will be spent on entitlement programs for illegal immigrants granted federal amnesty – a cost that has not been built into the budget.

“Even though the budget is balanced and we do have the rainy day fund, there do continue to be other risks to the budget that we remain concerned about,” said Bosler.

Prop. 98

Taylor told the committee that much of the extra revenue in this year’s budget has already been slated for K-12 schools in order to comply with the Proposition 98 spending mandate. “They have brought up their revenue estimates by roughly $2.5 billion – almost all of it goes to schools,” he said.

“For some [legislative] members and a lot of people out there in the public, they have a hard time understanding how that can be. ‘How come there’s no money available for other priorities in the budget?’ You’re going to have to explain to your advocacy groups and constituents why is it that you can have funding going up by $4 billion and none of it’s available for non-98 purposes.”

Taylor warned this year’s budgetary boom could actually lead to a bust in future years.

“If we have this kind of revenue surge, you’re going to permanently increase your [Prop.] 98 obligations,” he said. “If it’s a temporary surge and your capital gains and other revenues fall down to lower levels in subsequent years, you could actually be worse off in your 98 budget. Because you would be committed to higher 98 spending and won’t have monies left over, and may actually have to take a hit to your non-98 portion of your budget.”

More spending

Despite the cautionary advice, most of the committee Democrats argued for spending more money on expanding social-service programs. They were led by Committee Chair Shirley Weber, D-San Diego.

“This state still suffers from a high level of poverty,” she said. “California has the highest rate of poverty of any of the states in the nation. We have thousands of underemployed and unemployed Californians who should be contributing to our economy today. And we have thousands of children who are home who should probably be in early child development programs for learning. This is an unfunded poverty liability.

“Last year’s budget demonstrated the fact that we do have the capacity to do some of those things to address some of the poverty issues in this country and begin rebuilding California in a stronger and more thoughtful way.”

She was seconded by Assemblyman Kevin McCarty, D-Sacramento, who said, “I know there’s a lot of angst that not enough was done in this budget to reinvest in critical programs in California.” He argued for more funding for early childhood education, noting that only 4,000 slots are opening up this year in the program, despite interest from 25,000 families.

Assemblywoman Nora Campos, D-San Jose, also argued for more funding to address poverty, especially for preschool children. “Child care, child investment development – this is a priority for quite a few members in the Assembly,” she said. “When we talk about investing in K-12, there’s also a huge movement on what we are doing to invest in [ages] one-to-four to one-to-five. So that by the time they get to K[indergarten] they are ready to move forward.”

Assemblyman David Chiu, D-San Francisco, wants to provide state funding for affordable housing: “The governor mentioned that housing growth has slowed at the same time housing prices have increased significantly around the state. California is the second least affordable state in the country. Many parts of the state are in the midst of significant affordable housing crises.”

Bolser, noting that an affordable housing project in San Francisco cost $500,000 per unit, said that it would be quite expensive tackling that problem throughout the state. “This is obviously something you could put a lot of money into and would not make a very large dent in the problem,” he said.

The Assembly and Senate budget subcommittees will spend the next four months studying and revising the budget. The California Constitution requires the budget to be passed by June 15.

According to Proposition 25, which state voters passed in 2010, only a majority vote of each house of the Legislature now is needed to pass a budget, except for tax increases.

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