State Budget Signed

The governor signed the 2018-19 budget without any line-item vetoes earlier today. Details have not yet been posted on the Dept. of Finance website. However, it appears that UC got more in one-time allocations than were proposed in the May Revise. The May Revise listed about $157 million in one-time allocations. The budget summary now reports about $249 million. But we'll await the details.

As for the overall budget, it is somewhat of a surprise in that total reserves (the General Fund reserve, the Budget Stabilization Account {"rainy day fund"}, and a new Safety Net Reserve) fall. A fall in reserves means the overall budget is in deficit - to the tune of $798 million. The figures can be found below. Governor Brown has devoted budget news conference after budget news conference to warnings of the need to build up reserves in preparation for the next recession. According to official numbers, the current year's budget (2017-18) in fact runs a net surplus. But the budget for the coming year (2018-19) represents a reversal.

I am sure that the governor's spokespersons would point to some payments paying down past debt and the idea that such payments should be counted as offsets to the total deficit. The official document lists such pay downs as $1,747 million. So if you were to count the pay downs against the deficit, it would swing to a surplus of just under $1 billion. Either way, the budget is at best precariously balanced. If you are precariously balanced (or imbalanced) when times are good, a downturn would swiftly pull you into large deficits. As Brown's budget document itself points out, the California budget has a large capital gains tax revenue component that can easily evaporate in Bad Times. If you have doubts, ask Gray Davis.

$Millions                     2017-18       2018-19

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GF Reserve

Start of Year                  $5,702        $8,483  

Revenue &

Transfers                    $129,825      $133,332

Expenditures                 $127,044      $138,688

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

GF Reserve
End of Year                    $8,483        $3,127

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BSA-Start of Year              $6,713        $9,410         

BSA-End of year                $9,410       $13,768

BSA Surplus/Deficit           +$2,697       +$4,358

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Safety Net Reserve*

  Start of Year                    na            $0

  End of Year                      na          $200

Safety Net Reserve*

Surplus/Deficit                    na         +$200

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Total Reserves

Surplus/Deficit               +$5,478         -$798

 

Total Ending Reserves         $17,893       $17,095

  As % of Expenditures          14.1%         13.0%

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GF = General Fund

BSA = Budget Stabilization Account (“rainy day fund”)

*Note: The “Safety Net Reserve” is a new fund which gets around certain limits in the formula governing the BSA.

Source: http://www.ebudget.ca.gov/FullBudgetSummary.pdf