Sunday, March 26, 2017


[Click to enlarge]
The Legislative Analyst's Office (LAO) produced a history of the reserves in the general fund.* There are now actually two reserves: the regular reserve, and what is sometimes called the rainy-day fund. The latter was actually created under Schwarzenegger but never amounted to anything until Brown's ballot proposition began to fill it. Yours truly has added some commentary in italics to the LAO chart above. As can be seen, the ups and downs of actual reserves follows the business cycle. You can see the recession of the early 1980s, the recession of the early 1990s (which hit California especially hard because of the end of Cold War spending that occurred at the same time), the dot-com bust, and the Great Recession of 2008-09. Note that the planned (budgeted) end-of-year reserve is always positive (or at least non-negative), even though the actual reserve goes into the red when the economy has a downturn.** If there is a take-away from the chart, it is that even with large reserves, it only takes a couple of years to blow them out in a downturn.
**During the course of a fiscal year, the reserve in the general fund is often in the red as the seasonality of spending and tax receipts don't match. When that happens, the state controller borrows from funds outside the general fund and, if necessary, does short-term borrowing externally.

No comments: