Thursday, July 11, 2019

Jerry's Fiscal Legacy

Issued on schedule
The state controller has just issued her closing report for fiscal year 2018-19, the year ending last June 30. (In contrast, the governor/Dept. of Finance has yet to put out its final budget statement for the 2019-20 budget approved in late June.)

The past fiscal year's outcome was - in effect - Jerry Brown's legacy, since it unrolled under his last budget. It would be nice (more than nice!) if it were possible to reconcile the semi-accrual budgets proposed by the governor and passed by the legislature with the cash statements issued by the controller. But that has never been possible. Still, the Brown fiscal legacy is apparent in the build-up of "unused borrowable reserves" (funds that can be borrowed by the general fund for seasonal or other needs from outside the general fund). These unused reserves constitute the ultimate backup for state spending. Some of them are part of the various official reserves created as backups. Others are in funds outside the general fund that are designated for other purposes but that could be legally diverted to general fund use.

In June 2009 (end of the 2008-09 fiscal year), the ratio of unused borrowable reserves to general fund disbursements stood at 7.2%. Those with sufficient memories will recall that over the 2009 summer that followed, the state had to resort to issuing IOUs in lieu of paying all its bills. In June 2011 (end of the last Schwarzenegger budget), the ratio had improved to the still-precarious level of 10.7%. Under Brown, it continued to improve, year by year. The improvement resulted from general economic recovery from the Great Recession and the incremental tax revenue brought in by a Brown-proposed initiative. According to the controller's report, the ratio reached 35.1% by June 2019.

The governor's missing budget (as of this morning).
That ratio is Newsom's fiscal inheritance from Brown. (Because we don't have a 2019-20 budget from Newsom/Dept. of Finance, we don't know what the forecast is for this ratio in June 2020.) It provides Newsom with a budgetary cushion in case of an economic downturn. Unlike Schwarzenegger and Brown, Newsom has started off without a challenge of fiscal stringency. How he would respond should Bad Times arise remains to be seen. But one might have more confidence if he could follow the controller's example and get his first budget on the web on a timely basis.

UPDATE: The governor/Dept. of Finance finally posted the budget this afternoon. We will post an item about it subsequently.

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