State Budget Thangz - No Es Bueno

When the state budget got announced by Gov. Jerry, there was a flurry of activity at the Capitol, both from the “what does it mean?” aspect and the “Uh-oh, we got a problem" aspect.

Here’s a little of both to ruminate on…

When the LAO released its preliminary look at the 2013-14 budget, there were a few points the nonpartisan fiscal analyst made that require consideration and further cogitation:

•Supposedly the state has reached a point where its underlying expenditures and revenues are roughly in balance. On that same vein of believability, unicorns will now be able to hold elected office; trolls unamused.

•There are still considerable risks to revenue estimates given uncertainty surrounding federal fiscal policy and the volatility inherent in our revenue system. No duh.

•Those revenue estimate risks are: (1) uncertainty at the federal level over “fiscal cliff” issues related to the debt ceiling and sequestration; and, (2) normal volatility in our state revenue structure. For example, in addition, despite the Governor’s commitment to paying down much of the wall of debt, the state would still have no sizable reserve at the end of 2016–17 under his multiyear plan -and- would not have begun addressing huge unfunded liabilities associated with the teachers’ retirement system and state retiree health benefits. Oopsie.

The Assembly's budget overview hearing on the Governor's plan is scheduled for Thursday, January 31, while the Senate's will be this Thursday (January 24).

But here’s where the fun starts… when the folk at the Capitol refer to "the budget," they are referencing the General Fund, which Da Guv has proposed to be a tad above $97 billion in the next fiscal year. Problemo: That’s nowhere near the entire budget.

The whole fiscal enchilada also includes "special funds," as well as "bond funds" and “federal funds.” And there's been so much recent jockeying on how the state keeps its books, that denoting the General Fund as the budget is not only incomplete, but no small amount of misleading. Why?

The tendency has been to shift expenditures from the General Fund to new special funds and that has the effect – intentional or serendipitous – of flattening out General Fund stats, making the growth of state spending look smaller than it has been.

So how’s that work? For example, JB and the elected OK’ds what they termed "realignment," by shifting responsibility for parolees, low-level felons and some social and health services from the state to counties, along with a chunk of the state sales tax, amounting to more than $5 billion a year, to pay for them. The tax shift was ratified by voters last year as part of Prop. 30. The shifted revenue was removed from the general fund and routed through a new special fund.

As the Sac Bee’s Dan Walters noted, “We used to think of special funds as primarily highways and fish and game, but they total more than $40 billion in the new budget. And with $7.2 billion in bond spending, the total reaches $145.8 billion.

“The budget package now before the Legislature would also spend about $80 billion in federal funds, mostly for health and welfare services and education, so the real budget is more like $225 billion, which is the equivalent of 10 percent-plus of the state's economic output.

“Moreover, a truly complete budget would also include tens of billions of dollars in "tax expenditures," or what most of us would call loopholes.” As they say, “Pay no attention to the man behind the curtain.” That’s a major league reference to “The Wizard of Oz” and wholly apropos.