Friday, July 10, 2015

Lesson Learned

We now have the complete cash statement from the state controller for the last fiscal year, 2014-15, along with prior years.

So what lesson do we learn from the data? The statements show for each fiscal year what the estimated revenue was at the time a budget was passed for that year and the actual result. The first fiscal year for which Brown had to propose a budget in his second iteration of governor was 2011-12. State budget aficionados will recall that 2011-12 was the year that Brown tried to get Republicans in the legislature to put a proposition on the ballot to extend some expiring Schwarzenegger-era tax increases. He failed to get their cooperation in the end and to pass a budget, the legislature simply assumed that an extra $4 billion in revenue would arrive, although no one could say what tax would bring the extra money in. As it turned out, not surprisingly, it didn't arrive. The controller's website tells us that revenue fell short of the estimate (including the phantom $4 billion) by $4.9 billion in 2011-12. In short, the revenue assumed in the 2011-12 budget was an overestimate.

Having lesson the lesson that he would get no cooperation from the GOP legislators, Brown went the initiative route the following year and put an initiative on the ballot (i.e., he used the petition route) and got voters to approve temporary tax increases. In that year, and in each year thereafter, he underestimated revenues in his May revise budget and the underestimates became part of the budget enacted. Brown insisted on "conservative" revenue estimates as a way of holding down spending by the legislature. The underestimates, according to the controller's website, for fiscal years 2012-13, 2013-14, and 2014-15, were - respectively - $3.4 billion, $5.2 billion, and $6.8 billion.* So the errors on revenue were convenient: An overestimate in the first year when extra revenue was needed for accounting purposes; underestimates thereafter as a way of holding back spending. In contrast, his estimates for disbursements were within a narrow error range. Essentially, the "surprise" extra revenue went into paying off the debt of the general fund and into reserves.

So that's the lesson we learn. What lesson can Brown point to?
*You can find the cash statements at the links below:

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