Wondering About the State Budget?
There isn’t one. There are occasional reports of the governor meeting with legislative leaders but no sign of an accord in the legislature – where a 2/3 vote is required – or with the governor. At a meeting with the LA Chamber of Commerce yesterday, the governor sometimes seemed to say there would be a budget in a few weeks and sometimes that there might not be one until a new governor takes office.
About a week ago, a reporter sent me an emailed question about the accuracy of the governor’s deficit clock posted outside his office:
I wondered… about the rhetoric going back and forth over how much cash the state is actually losing every day a budget is late. The governor’s number, also used by the Republican leadership, is clearly rudimentary, and I wondered if there was a way to distill a better number or at least explain why the governor’s figure isn’t precise.
I responded: There are seasonalities in cash flows. The fact that there is no budget actually temporarily saves the state cash, since certain payments are not made but taxes flow in. In July 2009, however, there was a budget in place (although it had to be rejiggered) due to the Feb. 2009 deal. So it is not distorted by not having any budget
The July 2009 cash statement is at
http://www.sco.ca.gov/Files-ARD/CASH/fy0910_july.pdf
It shows receipts falling short of disbursements by $4.6 billion. So if we put in on a daily basis, the deficit was about $150 million per day.
What this tells you is that in July, there is not a lot of tax revenue flowing in and the state starts paying out for the new fiscal year. The revenue comes disproportionately later.
Clearly, if the state ran a deficit like July every month on the year, it would have essentially gone bankrupt. That would be an annual deficit of $55 billion. Since the entire general fund budget was around $85 billion and since education gets paid off before debt service, we would have defaulted on our bonds and had to release all prisoners including Charlie Manson!
So maybe this illustrates why a daily tabulation doesn’t mean much, given seasonality.
There is a larger issue and it has to do with confusing language about state budgets. Most people think a deficit means the difference between inflows and outflows. That is what the federal deficit means. But the governor’s $19.1 “deficit” is actually a mix of a stock (what we owed at the end of June 30, 2010, what he would like to add to the reserve (saving), and the difference between inflows and outflows if we did nothing. Here is a rough calculation putting deficit back into its common English meaning. (I am using numbers from the May revise.)
The governor puts what we owed at the end of the last fiscal year at $5.3 billion and what he wants to add to the reserve at $2.7 billion. To pay off the past debt and have a reserve of that size, he really wants a surplus this year of $5.3 + $2.7 = $8 billion. Let’s subtract that from $19.1 billion. That leaves $11.1 billion. So we need $11 billion of either more revenue or less spending this year to match inflows and outflow. The $11 billion we need but don’t have is the “workload” deficit for 2010-11, i.e., the deficit in common English if we do nothing. Divide that deficit by 365 days and you get about $30 million per day.
Of course, the legislature will eventually pass a budget and it could cut things retroactively. In effect, it is tough to take away money as the year goes on that people think they are getting. So that is the message the guv is trying to convey, albeit imperfectly.