California Conservative

Last Saturday, the FlashReport featured a column from Mike Genest, the Director of the California State Office of Finance, concerning Governor Schwarzenegger’s proposed State Budget. Steve Frank has submitted this ‘response’ to Genest’s piece.

The governor was so proud of his May Revise of the budget that he didn’t want to end the press conference last Friday. What is not to be proud of? $7.5 billion in unexpected revenues, repayment of the money promised to education, deficit is down to $2.5 billion (when it was expected to be $16 billion if the Davis spending habits had been continued), $2.2 billion into reserves and lots of goodies for the special interests.

It is when you get into the details that you realize this is a crisis waiting to happen. Instead of a “fantastic” budget, it is more like smoke and mirrors. GOP’ers nationwide are being criticized by Democrats and Republican grassroots for spending too much. When Arnold became governor 33 months ago, the last Davis budget was $76 billion. This budget is $101 billion in general revenue spending, with a total of $131 billion including trust funds and other off budget expenditures.

Last year the budget was $90 billion, this one is $101 billion. San Francisco Chronicle columnist Debra Saunders noted:

“Last year, Schwarzenegger tried to address Sacramento’s spending addiction by pushing Proposition 76, which would have limited the growth in state spending, but it failed. This year, apparently, he just wants to win re-election.”

Which Schwarzenegger is governor, the 2005 version which thought spending is out of control or the 2006 version that is spending every dime he can find, then adding $37 billion more in bonded indebtedness? Importantly, if re-elected, which Arnold will be Governor in 2007? (we need him re-elected, because he is better than Westly or Angelides)

Then there is the matter of the $2.2 billion added to the reserves, the "rainy day" fund. To most people a rainy day fund is to pay for something you hope never happens, but want to be prepared for. In this case, the fund is for expenditures you know will occur but you want it to look like you are doing well fiscally.

The North County Times let the cat out of the bag by announcing:

"In reality, those reserves likely would be only temporary because much of the money may be needed to cover pending lawsuits, federal program cuts, higher prison costs and as yet undetermined raises for state employees whose contracts expire this year. All those costs were not fully accounted for in the governor’s preliminary budget in January."

Any reason why [State Finace Director] Mr. Genest, in this space left this explanation out of his article:

We finally got the budget deficit down to $2.5 billion, that is good news! The bad news is, that isn’t true. What is left off the balance sheet are the unfunded pension and health care liabilities. Last year, just the unfunded pension liabilities of the State of California were $5 billion. It is estimated that the combined unfunded liabilities is close to $10 billion. So the deficit is really $12 billion. If you acted like a corporation or family,what is your income, how much are you spending, what is the difference. In the case of the Governors budget, the difference is somewhere around $12 billion, in deficit.

It would be even worse if the Governor did not have "carry over" money from the 2005-06 budget. Instead of using that money to pay down debt, he is using it to raise spending in this budget.

Let us not forget the $4.2 billion in sales tax money that would normally go to transportation and roads. This is a holdover calculation from state shift of 1/% of state sales tax to counties in 1971 and then adding motor vehicle fuels to state sales tax base.

The "spillover" calculation is a separate transfer of General Fund intended to be a true transfer to keep the state from experiencing a windfall from adding gas to tax base.

Most years there is no transfer; the spillover comes on when there is a relative acceleration in gas prices compared to all other goods. Current year spillover is also part of Bay Bridge fund deal.

Instead of the transportation bond measure giving $15 billion to roads, the $4.2 billion could be used to pay for our freeway needs, and save the interest payments.

Sacramento Bee columnist Dan Walters gave this sober analysis, "Indeed, the Schwarzenegger administration’s own projections are that the deficit will continue during Schwarzenegger’s second term, if he is re-elected. So the revised budget’s declaration that "it is imperative to view these gains with caution" is amply justified."

After we push away the smoke of press releases, look at the details of the budget. This is a start, now let?s really end the deficits, pay for our roads without adding debt, reform government policies and use the added revenues to pay off debt, not increase spending.

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Steve Frank is the publisher of California Political News and Views and a Senior Contributor to CaliforniaConservative.org. He is also a consultant currently working on gambling issues and advising other consultants on policy and coalition building.

Read more of his work here or at his blog.

This entry was posted on Tuesday, May 16th, 2006 at 9:34 am and is filed under Arnold, Articles, Author: Steve Frank, California, Economy, Op-Ed, Sacramento. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.