Wednesday, June 18, 2014

Planned State Budget Seems to Do an About Face: Surplus to Deficit

The planned budget for 2014-15, prior to any line-item vetoes by the governor, seems to be doing an about face from surplus to deficit according to the summary provided by the legislature.  You can find the summary at:

In particular, take a look at page 3 or the table below from that page. The reserve in the general fund at the beginning of the current fiscal year (2013-14) was $2.429 billion.  By June 30, 2014, the projected reserve will be $3.903 billion.  So the general fund ran a surplus (inflow minus outflow) of $3.903 billion - $2.429 billion = +$1.474 billion. What happens in 2014-15?  Some money that would otherwise flow into the general fund reserve will instead be diverted into a rainy day fund which voters are supposed to approve in November. According to the figures provided in the official document, the reserve plus the new rainy day fund will drop to $3.010 billion.  ($1.404 billion in the regular reserve plus $1.606 in the rainy day fund.)  The two reserves fall by $0.893 billion ($3.903 billion - $3.010 billion) - which means that outflows exceed inflows, a deficit in common parlance, but not in Sacramento-speak.  The projected end-of-year 2014-15 reserve, about 3% of the general fund budget, isn't much of a cushion against hard times.

Now a budget is just a plan based on a forecast of revenues and spending.  It could be wrong.  Indeed, it will be wrong since no one can predict the future with 100% accuracy.*  But if you were to ask former Governor Gray Davis about the wisdom of running a budget deficit (outflows > inflows) in good times, he might say that he learned that if bad times come along during deficit budgets, really terrible things could happen to the budget (and the governor) as revenues drop. When you are at the top of a mountain, the only way to fall is down.  You can't fall up from the peak.  Even if there is a little extra money now, UC administrators might also keep that earlier Gray Davis lesson in mind when they plan future university budgets.** 

*There is also the question - raised in past blog posts - about the discrepancy between the state controller's cash statement and the accrual accounting of the governor and legislature and the lack of any official reconciliation of the two.  We won't have the controller's final statement for 2013-14 until July.

**From page 21:

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