State Board Of Equalization Member Bill Leonard is considered to be one of the GOP’s experts on State finances… He penned the following for his “Leonard Letter” e-mail….
***Phony Revenues in May Revise***
I have now spent hours trying to explain the state budget to myself and ended up frustrated. I did find in the Department of Finance information the numbers that the state expects to take in (with May and June included in advance). The total is $101.1 billion this year and, for the next year that everyone is fighting about, the take is projected at $102.9 billion. However, I have learned the Governor is booking new bond debt and his lottery sale proposal — around $5 billion that is not real revenue, but actually is borrowing.
If you and I count money as revenue, we have to pay income taxes on it. However, if it’s a loan we do not have to pay taxes on the money because the IRS/FTB do not consider it revenue. But if you are state government, borrowed money is called revenue even though it was not earned nor collected as taxes and must be repaid. Most budgets would make the distinction between earned revenue and borrowed revenue. Too bad governments are not held to those standards.
You would think by the scary headlines and the dire warnings that taxpayers in California had all left and no one was around to pay the bills. In fact, on the next table in the report, the Governor predicts that the sales tax, the corporation tax, the motor vehicle fee/tax, the liquor tax, and the tobacco tax will raise more revenue next year than this year. Only the personal income tax will raise less money than the current year, and it is down less than 1%. We may be in a water drought, but we are not in a tax drought.
The spending side is much dicier. The Governor says that during this current fiscal year, which is almost over, the government will have spent $103.5 billion. Note that the spending is over $2 billion more than the revenue during the current year including those bond sales. We do not have a balanced budget this year and we really have not had one for several years running. The only reason that we are still able to pay our bills (and since the state government is a notoriously slow payer, even the phrase “pay our bills” is a joke) is that we are spending all of the reserves we have, and we are borrowing from cash in places like the highway account, and we have issued bonds to borrow even more.
For the coming year the Governor is now proposing spending $101.8 billion, which is commendable because this is actually a real reduction in spending over the prior year. Although two agencies (Health & Welfare, and Business, Transportation & Housing) are actually slated for increases, K-12 education is up for one of the larger decreases in spending over the prior year. I cannot yet tell how much this might be due to reductions in student enrollment versus the calculation of the extremely complex Proposition 98 education finance formula.