California’s Surplus Is How Much?

Tuesday, July 30, 2019

Page 9

IN MY OPINION (Column)

By JON COUPAL

During a recent meeting with allied organizations concerned about California’s high taxes, the question on everyone’s mind was: why do our political adversaries continue to push for even more taxes given that the state has a huge budget surplus? Also, how much excess revenue is there?

But like most questions involving public policy – and particularly those related to fiscal issues – the question quickly begot more questions. For example, what’s the difference between a surplus and a reserve? Also, should we look at just the general fund or should we expand the inquiry to special funds as well?

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If one includes reserves from special funds and adds them to the generally accepted figure of the surplus, the answer is stunning. General fund reserves exceed $20 billion and special fund reserves exceed $16 billion. In short, California is sitting on over $36 billion. This doesn’t even include the billions kept in reserve by local governments.

So with all this good news, why do the state and local governments continue to press for ever higher taxes? The answer—which they prefer to conceal from the taxpaying public—is that they know that the bill will soon be due for all the accumulated government debt.

A large budget surplus provides a grossly incomplete picture of the fiscal health of a state, city or county. A budget is more like an income statement. The revenues exceeding expenditures in any given year do not reflect liabilities in the way that a balance sheet would. For example, if a family sees an increase in take-home pay because mom or dad got a raise, that obviously has a positive effect on the family budget. But if they are still losing ground every month because of a big mortgage that they can’t afford, one can’t conclude that the family is financially stable.

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Public debt is the dark cloud hanging over all levels of government. At the national level, the economy is booming, unemployment is at record lows and the stock market seems to hit new highs on a daily basis. But few people are talking about the national debt. The Obama administration added more than $10 trillion to the national debt and, regrettably, the Trump administration is on a pace to match it. In the hyper-partisan environment that is Washington, where Republicans and Democrats disagree on just about everything, it is troubling that both parties have quietly agreed to increase the national debt limit while increasing spending.

The problem for California is that, unlike the federal government, it can’t print money. One estimate of total government debt for California exceeds a trillion dollars. Even if that estimate is at the high end, there is no disputing that, sooner or later, we will have to satisfy all the legally binding promises our political leaders have made to various interests. This includes all bond holders and, of course, all the public employee retirees who are the beneficiaries of some of the most generous pension plans in the nation.

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If there is a silver lining to this story it is that some political leaders and pundits are shining a brighter light on the debt issue. Even former Gov. Jerry Brown was able to secure some minor pension reforms, and a recent court ruling opened the door to further reforms. Sen. John Moorlach, R-Costa Mesa, the CPA who blew the whistle on Orange County’s pending bankruptcy more than a decade ago, has exposed the dangerous path that the state and local governments are on and is receiving well-deserved recognition for his work. Finally, new accounting rules promulgated by the Government Accounting Standards Board (GASB) have made it easier for the media and citizen activists to determining the true financial health of their local communities.

The upshot of all this is that there needs to be greater focus on managing debt because as good as budget surpluses may appear, they will disappear in a heartbeat when—not if—we have a severe recession.