Tuesday, June 28, 2016

No-Veto Budget Signed

Gov. Brown signed the state budget yesterday. (Policy wonks will point out that there are various trailer bills to be enacted and that other changes may be made as we get into the new fiscal year which begins Friday.) We noted yesterday that the governor has a line-item veto. But Brown did not use it at all, which is unusual. Budget details are not yet posted but there is little change from the May revise budget proposal.

As we have noted in past postings, under current budget arrangements, we have a rainy day fund and a regular reserve. To determine what's happening in terms of de facto surpluses or deficits in the general fund, you have to sum the two. If reserves rise, we have a surplus. If they fall, we have a deficit. In the enacted budget, the regular reserve in the rainy day fund is estimated to fall from $4.874 billion to $2.158 billion by the end of 2016-17 for a deficit of -$2.158 billion. The rainy day fund reserve, on the other hand, rises from $3.420 billion to $6.714 billion for a surplus of +$3.294 billion. The sum of the two is a net surplus of $1.136 billion.

Note that Brown insisted on having an extra $2 billion tucked into the rainy day fund beyond what the automatic formulas for that fund would have accumulated. But as the arithmetic above shows, he got the extra $2 billion by moving it from the regular reserve to the rainy day fund, which can be viewed as a cosmetic action. Nonetheless, the total reserve (regular + rainy day) rises from an estimated 7.2% of total general fund spending as of June 30 of this year to 7.7% of total spending as of June 30, 2017. In case of a recession, that might give the legislature something like a year to make budgetary corrections - maybe.

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