While tax season is gearing up, the state government is now running low on cash reserves. Controller John Chiang announced today that without payment delays and other tactics, the state will run out of cash in March:
California will run out of cash by early March if the state does not take swift action to find $3.3 billion through payment delays and borrowing, according to a letter state Controller John Chiang sent to state lawmakers today.
The announcement is surprising since lawmakers previously believed the state had enough cash to last through the fiscal year that ends in June.
But Chiang said additional cash management solutions are needed because state tax revenues are $2.6 billion less than what Gov. Jerry Brown and state lawmakers assumed in their optimistic budget last year. Meanwhile, Chiang said, the state is spending $2.6 billion more than state leaders planned on. (SacBee)
To some extent this happens every year. Last year we had to borrow $10B to tide us over until tax revenues came in. And heck, Chiang thinks this year will only be $5.4billion. The world is getting better, hooray.
Unfortunately, with the continuing high demands on state services, this is really to be expected. And, Chiang, as he has always done, will have to find a way to balance the state's checkbook. Fun job, isn't it?
Lower than expected revenues and higher expenditures create additional budget pressure
by Brian Leubitz
These are not exactly the figures that the Governor wanted to see right now: Disbursements exceeded projections by $2.65 Billion and revenue was $165 million below the Governor's latest estimate from his budget proposal last week. That is $1.4 bil below the most recently passed budget. All in all, some nasty numbers.
"While we saw positive numbers in November, December's totals failed to meet even the latest revenue projections," said Chiang. "Coupled with higher spending tied to unrealized cost savings, these latest revenue figures create growing concern that legislative action may be needed in the near future to ensure that the State can meet its payment obligations.
$4B of anticipated revenue now looks unlikely to materialize
by Brian Leubitz
The budget was always something of a hope and prayer exercise. Well, with today's cash figures from Controller Chiang's office, you better start praying harder:
"While July's revenues performed remarkably similar to last year's, they still did not meet the budget's projections," said Chiang. "While we hope for better news in the months ahead, every drop in revenues puts us closer to the drastic trigger cuts that could be imposed next year."
Income taxes were above projections by $89 million (2.9 percent) in July. But sales taxes were down $139.4 million (-12.5 percent), and corporate taxes were down $69.5 million (-19.3 percent) in the same month.
Unfotunately, we need to exceed projections by quite a few bucks every month to get to the hopeful goal of $4b of "additional revenue." With this latest setback, we are down $538.8 million from where we need to be to avoid the triggers.
And at this point, we can't even get enough money from new sources soon enough if we thought we could pass a ballot measure. The next election, in June, comes at the end of the fiscal year, too late to really help.
Of course, those triggered cuts would further devastate the California economy, our schools and our services. Unless we get that revenue soon, this fiscal year could be a lot bleaker than we thought.
(Bumped for correction - promoted by Brian Leubitz)
UPDATE: It seems I misinterpreted the press release. We are ahead of where we expected to be in last year's budget, but behind where we expected to be in this year's budget. About $350 million behind. If this pace continues, the majority of the triggered cuts will happen. We'll have to wait on numbers for a few more months to see where we are going.
With the 2011-2012 budget now in place, and being held together with a few wishes and unicorn dust, Sacramento watchers will be keeping a close eye on the monthly revenue figures from the the Controller's office. The June numbers were pretty good, all things considered.
The State ended the fiscal year with $95.5 billion in receipts and $93.8 billion in disbursements, and that fact by itself seems to be a positive sign that the unicorns are looking favorably upon our state. June revenues alone came in $440.5 million (3.7 percent) above estimates found in the May Revision of the Governor's proposed 2011-12 budget.
Sales taxes were above projections by $21.8 million (0.8 percent) in June, personal income taxes were up $410.5 million (6.8 percent), and corporate taxes were up $156 million (7.2 percent). In total, the State Budget did expect $1.2 billion in additional May and June revenues (above those projected in the May Revise estimates) to be carried-over into the new fiscal year. By June 30, $849 million in additional revenue had materialized, with some cash flow numbers still outstanding
John Chiang and his staff in the Controller's office has done an amazing job shifting dollars around and generally managing where our resources are hanging out. We'll need to keep up some pretty solid numbers for the rest of the year. California's economy has been tentatively growing, but with the ridiculousness that is the debt ceiling debate, and the shaky job growth, there is a lot of guesswork here. Time will tell if any of that expected $4Billion will materialize.
But he just isn't going to be the one to sign his name to that
by Brian Leubitz
During the intermission between paychecks for the Legislators, there were a lot of angry press releases sent out decrying the nerve of that darn Controller. And at the time, I thought aloud that eventually somebody would challenge it, though the nerve of that particular legislator would likely be something to behold.
And I stick to that more than ever today. Yesterday, Sen. Steinberg says that the COntroller really didn't have the authority to decide what was balanced, and that his decision needs to be litigated.
Steinberg, a Sacramento Democrat, said the issue needs to be legally challenged, though he still doesn't know who will pursue the case.
"In the moment, of course, it was a popular decision," Steinberg told The Bee's Capitol Bureau. "But over the long term, do we really want any governor of the state of California, or a controller, or it could be an attorney general, to say, 'I demand more cuts. I demand solutions different from what you presented or else people aren't going to get paid.' "
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"I think it was an erroneous decision," Steinberg said. "And I think over time it will be seen as a decision with very troubling precedent for this state and our system of government."(SacBee)
I'm not sure that it made a really huge difference this time, as it was ultimately the Gov. that tossed in the towel this time. But next time this comes up, what if the Governor, perhaps even a Republican...gasp!, is playing Arnold-like games of brinksmanship. Does the legislator, sans pay, really have the ability to hold out forever?
Well, the legislators sort of assumed that the budget that they passed last week would be sufficient to keep their paychecks coming under Prop 25. It is something of an interesting legal question as to whether the passed budget has to be "balanced", but that's the way Controller John Chiang is reading it. So, unless a legislator wants to challenge him (good optics there), that's how it is going to be. And, today, Chiang said that the majority vote budget from last week was not balanced to satisfy Prop 25:
In doing so, the Democratic controller is exercising unprecedented authority Tuesday, establishing a new role for his office under Propositions 25 and 58 to determine whether a legislative budget is "balanced."
"My office's careful review of the recently-passed budget found components that were miscalculated, miscounted or unfinished," Chiang said in a statement. "The numbers simply did not add up, and the Legislature will forfeit their pay until a balanced budget is sent to the Governor."
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"The Controller is, in effect, allowing Legislative Republicans to control the budget process and I believe that's a very unfortunate outcome that is inconsistent with the intent of Proposition 25," said Speaker Pérez, D-Los Angeles. "In the coming days, we will be taking additional budget action informed by the Controller's analysis, and consistent with the values of the budget we passed last week." (SacBee)
Two things are clear, this "balanced" requirement gives the Controller a hefty new power, and it also restores some of the power that Prop 25 took from the Minority. While the daily well-being of the legislators isn't likely to be on the line anytime soon, this move does give the Republicans a small bit of additional leverage over the process.
It's a gimmick, but perhaps a gimmick that changes the playing field just enough to actually make a difference.
UPDATE: Sen Steinberg was no fan of the decision as well, saying "he Controller's decision today sets a dangerous precedent. The impact on legislative members is real, but it pales in comparison to the impact on school children, the elderly, and the men and women who protect our safety. This decision will not change our commitment and obligation to stand for the people we represent."
AKA California's Good Senator. Boxer is a reliable liberal in a senate full of utterly useless corporate centrists, and quite unafraid to make waves in the service of doing the right thing. In a career that has mostly been dominated by Republican control of the senate, Boxer has distinguished herself by pushing back against a decade of wingnuttery. By contrast, I knew about Fiorina's awful reputation in silicon valley a decade before she decided to make a vanity run for senate, just from techies I knew heaping scorn upon the CEO who drove HP into the ground and then walked away with millions. Thank goodness Boxer's a formidable campaigner, and Fiorina appears to be headed for the dusty place where all the gazillionaire right wing vanity candidates go after they lose, right next to Michael Huffington.
House of Representatives
CA-01 - Mike Thompson
Mike's generally a pretty good guy, and there have been no groaners like the credit card/bankruptcy bill. this time around. Mike's candidate-for-life in that district, but he does a good job representing his people, and I respect that.
CA-02 - Jim Reed
This district is so gerrymandered for Republicans it isn't funny, but I have to applaud Reed for making a serious hard run at the execrable Wally Herger, who isn't even bothering to campaign this time around, much less debate Reed.
CA-03 - Ami Bera
I am thrilled to see Democrats finally start to compete east of the Carquinez, and Bera is certainly giving Lungren a run for his money. As a once and possibly future denizen of the 3rd CD, I really hope Bera knocks off that right wing SoCal carpetbagger. The 80 corridor has changed, and deserves a good congressman.
Hey look at that, a better than expected August bought us some time to avoid IOUs:
The Democratic controller said the state took in 3.9 percent more revenues in August than the Department of Finance projected it would. Chiang said the August cash totals were sufficient to ward off an IOU threat for now. He previously said IOUs might be necessary by mid-September at the latest.(SacBee)
Not sure what that will do to get the budget in place any sooner, but as for right now, with Arnold in Asia, a deal still seems a long way off. It just might be that we don't have anything until the election is decided. In case this election needed to become more important, well, there you have it.
"He's just looks like a nerd, right?" said Brian Leubitz, founder of Calitics, a liberal blog.
But beneath the wonkish exterior, Chiang has displayed sharp political instincts that have made him a favorite of the politically potent labor unions that represent the state's workforce and have contributed significantly to his campaigns. (LA Times)
To be honest, this was kind of a throwaway line in the interview. I was saying that he doesn't initially strike you as the guy who would stand up to The Terminator. But in his own quiet, unassuming way, he is. My other quote is about how Chiang is now one of the few progressive leaders who has really impressed the base.
But Chiang, like Debra Bowen, has impressed through sheer merit. He really understands his role, and his job. And he leverages his power, when possible, to fight for progressive change. At the same time, he is just very capable. Take a look at one of the credit agency reports, and you'll find them praising Chiang and his office for their excellent cash management during last year's budget crisis. He probably saved us a small fortune by helping to maintain (as much as that is possible) our credit rating. I won't go in to how much of the credit rating is complete BS, as we've mentioned that in the past. But at least the agencies recognize competence.
In the end, isn't it competence that we should be favoring for our fiscal position. Somebody who understands the complexities of sound cash flow management, and the consequences of the Governor's reckless actions. Prudence...it's perhaps a quality that the Governor could get a real lesson from John Chiang.
Sure, if I wanted to blow up an alien vessel, I'd call Schwarzenegger. But stave off fiscal insolvency? Sacramento calls John Chiang.
Yesterday, Arnold Schwarzenegger sued for an injunction requiring Controller John Chiang to impliment his order to cut state worker salaries to the minimum wage. Controller Chiang has a response:
State Controller John Chiang filed suit today in an attempt to block Gov. Arnold Schwarzenegger's order to reduce pay for most state workers to the federal minimum wage during the current budget impasse.
Chiang's suit, filed in Sacramento Superior Court, complains that he is being forced to choose between violating Schwarzenegger's order or violating various federal and state laws. Read the cross complaint here.(SacBee)
A hearing should be scheduled fairly shortly; we'll keep you updated on this situation. The response brings up a number of fairly important issues, such as how to account to corrections employees that are now under federal court receivership, tax implications, and how to actually deal with the excluded class of six unions that have signed new deals.
The whole order is something of a mess, with Arnold not really considering the implications. Nothing new there.
The gloves are off between John Chiang and the Governor. Today, Arnold filed for an injunction requiring Chiang to not issue the full paychecks to state workers:
The Schwarzenegger administration submitted a court petition Tuesday in Sacramento County Superior Court seeking an injunction to force state Controller John Chiang to slash the wages of roughly 200,000 state workers.
Schwarzenegger has ordered the wages of state employees cut to $7.25 an hour until a budget is signed. A state appeals court agreed that the governor had the authority to do so last week, but Chiang, a Democrat, has continued to fight the directive. (LA Times)
Chiang has been fighting this for a number of years now, but the Supreme Court has yet to way in decisively one way or the other. Chiang has been arguing for years that unless the computer system is upgraded the pay cut will wreak havoc upon the payroll system.
In the end, the cut simply isn't necessary. It's just Arnold playing games with the state's workforce. But, it seems anything goes with state workers these days. Name a method of attack, and it's pretty much a lock that some Republican (or Democrat/Green) will try it.
In a strongly worded rebuke, state Controller John Chiang said Thursday that he would defy Gov. Arnold Schwarzenegger's order to slash the pay of state workers until "the courts hand down a final resolution."
Chiang, a Democrat, said the pay cuts will "do nothing to solve the budget deficit" because state employees are entitled to their back pay once a budget is in place. "In the absence of the leadership needed to bring the Legislature to an agreement on his budget, the governor again resorts to political tricks," Chiang said in a statement. ...
"Again, absent a final court ruling, I will continue to protect the state's finances and pay full wages earned by state employees," Chiang declared. (LA Times)
Good for Chiang. This is a political stunt by the governor, and isn't necessary for purposes of the state budget. Honestly, there have been few batter allies for state workers than John Chiang. While maintaining a steady hand at the fiscal controls, he has managed to be a counterbalance to the Governor's brinskmanship.
While some on Wall Street would prefer that the IOUs keep coming, it looks like they will end sooner rather than later. JP Morgan Chase, one of our "too big to fail" banks, has decided to step in to the fray and loan the state some cash to cover expenses for the next month.
Treasurer Bill Lockyer says JPMorgan Chase & Co. has agreed to lend California $1.5 billion as part of Controller John Chiang's plan to begin redeeming IOUs on Sept. 4.
The IOUs, which the cash-strapped state began issuing July 2 to pay many of its business vendors and other creditors, were supposed to mature Oct. 2. But Chiang said last week that the budget passed by the Legislature produced enough savings to allow for earlier redemption of the scrip -- provided the state could get a $1.5-billion short-term loan by Aug. 28. (LA Times 8/19/09)
The risk here for Chase is almost zero, so what ever interest they get should be set at some sort of reasonable cost. The state should begin issuing revenue anticipation notes soon, and Chase will then get its cash back. I suppose it must be nice to have a billion or two to loan out when the mood strikes you.
At any rate, the ending of the IOUs was getting critical for small business that contract with the state. They've been essentially financing the state during this round of the budget debacle, and these aren't really people that can afford to do that.
As John Chiang noted on the radio, Fitch has moved us down to an A- credit rating:
Fitch Ratings downgraded California's general obligation credit rating on Thursday to A-minus from A, based on the magnitude of the state's financial challenges and persistent weakening economy. The state's finances will continue to be strained through fiscal year 2010 and beyond regardless of any likely outcome to the current budget impasse, Fitch analysts said in a report. The $69.4 billion in debt outstanding affected by the downgrade are also on Rating Watch Negative, reflecting short-term concerns about the state's ability to solve its liquidity crisis, Fitch said. (Marketwatch 6/25/09)
We are now several ratings below every other state, and there is only one rating level between us and junk bond status.
That's going to cost us big-time when we try to borrow money. It's unclear exactly how much, but it again brings up the question of a federal backstop that could save us over one billion dollars without costing the feds anything. Of course, California isn't particularly popular these days, but we really aren't the only state that could use these federal loan guarantees. Other states, such as Arizona, need the help as well.
Until we actually solve both the short-term budget crisis and come up with a long-term reform program to put the state in a position of solid governance, we don't really stand much a chance of upgrades.
State Controller John Chiang is talking about the IOUs he might be issuing next week live right now on KQED 88.5 in San Francisco until 9:30. You can listen online here.
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.
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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.
The California Department of Finance wants to "drill baby drill" off the Golden State's coastline, and they're willing to undermine 70+ years of checks and balances to do it. Will we let them get away with it?
In late January, I joined California Controller John Chiang in a two-to-one vote of the California State Lands Commission (SLC) to reject what would have been the first new oil lease in California waters in more than 40 years. As chair of the SLC, I take my responsibility as a steward of the environment very seriously, and I did not think the proposal was in the best interests of the state. Beyond the inherent environmental risks posed by all new drilling projects, I did not think assurances included in the proposal to decommission oil platforms decades down the road were enforceable.
Unfortunately, the Department of Finance is unable to take "No" for an answer. California needs your help over the flip...
Californians once took great pride in our educational system. We built one of the greatest public education systems in the world, both K-12 and higher ed. We passed prop 98 to protect education funding and a majority has consistenly supported school funding at higher levels. However, in the last few years, things have been slipping. The Republicans have been working to subtly undermine the grounds that Prop 98 has stood upon, and they have their sights set on bigger chunks of money in the next budget fight.
Today, educational advocates are going to testify in the budget conference committee. From janitors to teachers, aides to superintendents, the entire school team needs to be represented as we work towards protecting the future of this state. Education is simply THE key to our economic future, if we neglect it now, we solve no long-term problems and only create more.
The hearing begins this morning at 10:30 in the Capitol, but the fight will go all the way through a deal. And, according to State Controller John Chiang, we need to have a deal by June 15:
The cash shortage will be four times as bad as this past winter, when California stopped infrastructure projects and delayed payments to vendors and refunds to taxpayers.
State Controller John Chiang told lawmakers Friday that declining tax revenue will cause the state's treasury to fall $2.1 billion into the red in July.
He urged lawmakers to pass a budget by the June 15 constitutional deadline. If they don't act quickly to cut spending or raise revenue, Chiang said the deficit will hit $14.3 billion by December.(News10 (AP) 6/1/09)
As we move forward over the next two weeks, we are surely going to try to see some attempts by interest groups to get their perspectives heard. However, given the time-sensitive nature of this, one has to wonder how much public input we are going to get. Crisis-based budgeting only breeds more crises.
Ok, shocking might not be the best word for it, perhaps "completely expected" would work better. The latest bit of data to come out from the good folks at the Field poll is approval data (PDF) on our elected officials. And let's just say it ain't all that pretty. The Legislature is sitting at a sparkling 14% approval rating and the Governator is at 33%.
I included a couple of the breakouts here by region. Interestingly, the San Francisco Bay region seems to be a bit more sympathetic to the elected officials. For both the Governor and the Legislature, approval numbers were highest by the Bay. On the other hand, the LA area pretty much hates Arnold, and the Central Valley feels the same way about the Legislature.
I think one question that wasn't answered here was how Californians feel about their own Legislator. Typically those numbers are far higher, after all it's harder to hate somebody you've met and voted for several times than the nebulous "Legislature." Nobody votes for the "legislature" so there is no ownership of that body by the voters. On the other hand, over 50% of the state voted to re-elect the Governator.
Also interesting, but unsurprising, was that Arnold is now officially more popular with Democrats than Republicans. Congratulations on that Arnold. Your party officially hates you.
It's clear that the elected leaders will not be featured prominently in any commercials in the next three weeks. Well, not if the Yes campaigns want to win. Although, if there was an ad about Prop 1C (lottery), perhaps a wonkish politician might help. I was thinking John Chiang, but I don't know his official position on the issue, and I doubt that he would want to be associated with this stinker of a special election.
