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Both Budget & Cash Flow Disasters Getting Worse

by: Brian Leubitz

Wed Jun 10, 2009 at 15:55:03 PM PDT

There are a lot of terms getting thrown around in this budget mess.  There is, of course, the fact that we will take in a lot less money than we have allocated.  That's your traditional budget deficit.  

But there is also the issue of how much actual cash we have in our accounts.  See, every summer we generally take in less money than we need. And that is compensated during other, more flush times of the year.  Typically, the state sells "Revenue Anticipation Notes" to cover these holes. The trouble is that with the credit crisis combined with the fact that our credit is darn near junk status, it's tough to sell those notes.  That's where the federal backstop (read:not a bailout, wouldn't cost the feds any money) would come in to save us a billion dollars or so.

All that becomes really, really important when you read the horrifying numbers that Controller John Chiang just released.  It is not pretty:

Chiang said the revenue projections for May -- made in early May as part of the governor's revised budget proposal -- were off $827 million when the books closed on the month.

Personal income taxes were off $475 million, 23 percent below estimates. Sales taxes (off $109 million, 3.3 percent) and corporate taxes (off $84.4 million, 25.8 percent) also fell below projections.

Year over year, state general fund revenue in May was down 17.7 percent -- $1.14 billion -- from May 2008. One possible bright spot: Corporate tax collections were up over May 2008, but still below estimates in the governor's May revision.
*  *  *
Chiang has said the state will run out of cash in July, projecting a $2.78 billion cash deficit on July 31. (CapAlert 6/10/09)

You can read the whole report (PDF) or check it out over the flip if you are so inclined, it is very readable.  It's almost like a magazine with some graphics. I almost expect to see an ad for an iPhone somewhere near the end of the report.

Nonetheless, read through report if you dare.  The Controller has compiled some economic statistics for the last few fiscal years, and the numbers are not good. Just in case you needed some reminding.

The state has actually been able to save here and there, so it is not clear how this report would place the total budget deficit number. However, our controller did leave us with that cash flow number, which could force the two parties to make a deal sooner rather than later.  

Brian Leubitz :: Both Budget & Cash Flow Disasters Getting Worse

Controller's June Summary -
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Fail! (0.00 / 0)
wow, an epic fail for california.  Even after raising sales taxes by a full 1%, which amounts to an over 10% rise, sales tax revs fell by 12% from last year (intersting that the economy only shrank by around 6-8% in that time - makes you wonder how much people are bypassing sales tax because it is so outrageously high) and off 3.3% from reduced estimates.

The full length report from Chiang is much better.  It clearly shows that to come up with the $20 billion in cuts, you are going to have to give up on all three of the big Ps, Prisons, Public Schools and the Poor.  

Medical assistance is going to have to take a giant hit, public schools k-12, forget about anything like the current $30 billion a year, and the prisons, well, let out all the drug offenders and maybe put a sales tax on pot!

I can't wait for the Obama administration to put their hooks into California when the legislature lacks the cojones to cut.  I would guess that Obama demands prop 13 be tossed out, that a gas tax of 30 cents per gallon be imposed, that the high personal income tax rate be increased to around 13% from 10.55% and that all state exemptions for children be ended.  

Epic fail! (0.00 / 0)
That's where the federal backstop (read:not a bailout, wouldn't cost the feds any money) would come in to save us a billion dollars or so.

That's what they said about Fannie Mae and Freddie Mac.  How much have those "implicit" guarantees cost us?

If there were no cost/risk to a Federal guarantee, there would be no need for it.  The very fact that bond investors won't lend to California at low rates speaks for itself.

California has massive structural deficits which will not be addressed by getting a guarantee on RANs.  If the Feds guarantee California debt now, it will be only the first of many guarantees which will end like Fannie and Freddie: guarantees turning into bailouts.

good point wc (0.00 / 0)
there is an inherent problem with a backstop - it is really unfair to other states that can manage their affairs.    

On the one hand, everyone knows that california will beg borrow and steal rather than touch a single public sector job or really jam a regressive tax through, both of which are necessary as you cannot raise corporate or individual taxes due to their interests being too well protected.

so, it will be a plain bailout.  

pretty sad.  

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