In our commentary yesterday, we featured some input on the state budget from State Board of Equalization Member Bill Leonard (you can read that here).
Mike Genest, the Governor’s Director of Finance (who has written a couple of columns for this site in the past, so he gets high marks from the FR team) penned this "rebuttal" as it were to Leonard’s comments:
First, regarding Bill Leonard’s comments on the bonds, there is full and absolute disclosure of all state bonds. Not only does the Treasurer publish them on his website; they are an integral part of the state’s "Official Statement" – a comprehensive financial statement and disclosure document that’s required for the state to provide to investors for every bond sale. And the statement on the energy bonds is explicit: "The bonds shall not directly or indirectly or contingently obligate the state … to levy or to pledge any form of taxation whatever … or to make any appropriation for their payment."
(And regarding the "Schwarzenegger bonds", that’s Proposition 57, and let’s be clear: those bonds were overwhelmingly supported by California voters in 2004 to avert a catastrophic financial crisis that was precipitated by the reckless and unsustainable borrowing during the Davis Administration.)
Second, as for "uncertainties": any budget is predicated on a number of assumptions on both the revenue and expenditure sides of the ledger. Many of them hit their mark over the course of a fiscal year. Others may not. We certainly agree with Bill that these variables can – and do – change. That’s precisely why the Governor has sought a large budget reserve as a prudent hedge against these very uncertainties. The total reserve at the time of the May Revision was $2.2 billion, and the Governor was pleased that the Assembly’s version of the budget was able to boost the reserve even higher to $3.4 billion – the largest reserve on record.
Third, Bill is critical of the fact that the Assembly’s version of the 2007 budget "claims" to end the fiscal year in the black because there’s a large carry-over reserve at the start of the fiscal year. But that is exactly the kind of balanced budget that the state has operated under for the past year – and one that received Senate Republican support.
When the Senate voted in June of 2006 on the AB 1801, the 2006 Budget Act, revenues were projected at the time to be $93.9 billion. At the same time, expenditures were projected to be $101.2 billion, a difference of $7.3 billion – or, $7.3 billion out of balance if you take Bill’s view. However, the state started the fiscal year with a positive balance of $9.5 billion – meaning that the state’s resources exceeded its expenditures by $2.2 billion.
Five Senate Republicans – including Senators Ackerman, Ashburn, Denham, and Dutton – voted in favor of the measure. And the companion measure to implement the 2006 budget, AB 1811, received all but one Senate Republican vote.
At the signing ceremony for the 2006 Budget Act, Senator Ackerman said, "This budget does meet a lot of Republican priorities in paying down the debt, increasing the reserve, taking care of education, and taking care of law enforcement. We think it is a good balance for the State of California." With last month’s approval of a 2007 budget by the Assembly, we believe the same kind of responsible Republican budget sits before the Senate today.