Pages

Thursday, June 11, 2020

Message from the Controller Likely Favors Legislature Over Governor

If you asked your kid what a "controller" is, you would probably get an answer such as the image in this post. If you asked a typical California voter, he or she might say it's a state official. If you asked that same voter what the difference is between the state controller and the state treasurer, you probably would get a shrug.

One difference between the two jobs is that in normal circumstance, the controller keeps track of state cash in its various accounts. The treasurer generally is in charge of state external borrowing.

As we have noted in prior posts, the state has cash in accounts linked to the general fund, but also cash in other accounts designated for particular purposes. It has a lot more cash than just what is in the high-profile "rainy day" fund. When it is necessary, the state controller can engage in internal borrowing, essentially putting IOUs in the accounts outside the general fund and transferring the cash to cover general fund expenses.

Things were booming along in the state's economy through February and then the coronavirus lockdown took place, cutting into state tax revenue. The state started spending money on various coronavirus programs just as tax revenues began to decline due to the shrinkage of the tax base. In addition, the state delayed the due date for state income taxes until July.

During the boom period, "unused borrowable resources" (which include official reserves, but also cash in funds outside the general fund) not surprisingly ran ahead of the prior year's totals. Starting in April, again not surprisingly, the current year's totals fell below last year's. But not by much! How can that be possible? The answer is that the state received a one-time dollop of cash - $9.5 billion - from the federal government as part of the CARES Act.

The result is that unused borrowable resources through May, the controller reported yesterday, were still $44 billion (as opposed to $46 billion last year through May). As of now, the state has a lot of cash around. This is not 2009, the year the state ran out of cash and handed out IOUs to some (involuntary) creditors. We are nowhere near the 2009 situation.

The controller's latest report comes as the governor and legislature are approaching the budget for the upcoming 2020-21 fiscal year differently. In his May Revise, the governor is taking the view that we should pessimistically assume the worst and then, if we are pleasantly surprised - notably by more federal cash - we can restore cuts that were enacted. The legislature is taking the opposite view. It wants to assume optimistically that another dollop of federal cash will arrive and then, if we are unpleasantly surprised because there is no dollop, we can make some cuts.

What the controller's latest report is saying is that if the legislature gets its way, there is cash on hand to keep things going until we know what may or may not happen at the federal level. There is even enough cash to await the outcome of the November election which might produce a federal government that is more keen to bail out the states and localities. Put another way, the controller's report favors the legislature over the governor in the current negotiations.

There won't be any further news from the controller between now and June 15th, when the legislature has to enact a budget. There won't be any further news from the controller between now and June 30th, when the governor has to sign a budget. The next controller's report on state cash will be out on July 10th. But even with another month of data to complete the books for fiscal year 2019-20, the state will still have a lot of cash.

You can find controller Betty Yee's latest cash report at:
https://sco.ca.gov/Files-ARD/CASH/May2020StatementofGeneralFundCashReceiptsandDisbursements.pdf.

No comments:

Post a Comment