Monday, July 2, 2018

State Budget Signed - Part 2

The Dept. of Finance has yet to provide the more detailed version of the budget that will (soon) accompany the summary already posted. But below is an expanded version of the table we provided in an earlier blog posting.* What it shows in the first two columns from the left is the evolution of the budget for the last fiscal year that ended June 30. It compares the budget that was enacted at the start of that fiscal year (July 1, 2017) with what is now estimated actually to have happened. Basically, there was a significant underestimate of revenue. The result of that underestimate was more in the General Fund reserve at the end of the year and more in the rainy-day fund. So total reserves were higher than had been projected.

One interpretation of the seeming puzzle of why Gov. Brown let his final budget for 2018-19 go into deficit is that he overshot his planned surplus for 2017-18. Or he may believe that 2018-19 will repeat what happened in 2017-18, i.e., that revenues will turn out to be underestimated, pushing the planned deficit into a surplus. That is, a year from now, his budgetary legacy will not be tarnished by a final deficit. Still another interpretation is that since no one seems to have noticed the planned deficit for 2018-19, and since budgetary language in state finance is notoriously fuzzy, he can just say his final budget is in surplus simply because there is money in the till, even if it is declining.

As they say, time will tell.

Table 1: California Budget Summary
$ Millions                   2017-18       2017-18       2018-19
                             Enacted     June 2018     June 2018
GF Reserve
Start of Year                 $1,622        $5,702        $8,483  

Revenue &
Transfers                   $125,880      $129,825      $133,332

Expenditures                $125,096      $127,044      $138,688

GF Surplus/Deficit             +$784       +$2,781       -$5,356         

GF Reserve
End of Year                   $2,406        $8,483        $3,127
BSA-Start of Year             $6,713        $6,713        $9,410         
BSA-End of year               $8,486        $9,410       $13,768

BSA Surplus/Deficit          +$1,773       +$2,697       +$4,358
Safety Net Reserve*
  Start of Year                   na            na            $0
  End of Year                     na            na          $200

Safety Net Reserve*
Surplus/Deficit                   na            na         +$200
Total Reserves
Surplus/Deficit              +$2,557       +$5,478         -$798
Total Ending Reserves        $10,892       $17,893       $17,095
  As % of Expenditures          8.7%         14.1%         13.0%
GF = General Fund
BSA = Budget Stabilization Account (“rainy day fund”)
*The “Safety Net Reserve” is a fund created for the 2018-19 budget that avoids certain limits in the formula governing the BSA.

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