The Cash Cushion

It may be hard to find sources of comfort nowadays. Perhaps the last place one would expect to look for comfort would be in California's cash monthly statements of the state controller. First, a little history. After the 2008-09 Great Recession officially ended, the state soon ran out of cash. During the summer of 2009, it issued IOUs (registered warrants) as payments for certain liabilities that came due. This time, however, the state has built up a substantial cash cushion. That cushion consists of more than the official "rainy day" fund and the other reserve funds associated with the state's General Fund. There are also accounts outside the General Fund that can be a source of internal borrowing.

As the chart above shows, so-called unused borrowable resources - the amount of remaining available cash from those outside accounts and from the official reserves, had totaled over $51 billion at the end of 2018-19 (thus at the beginning of 2019-20). Until the coronavirus crisis in March 2020, unused borrowable resources in 2019-20 had generally been at or above levels in the prior year. (There are fluctuations month-to-month depending on the timing of receipts and spending during the year.)

Beginning in March 2020, there was a drain on the general fund caused by spending to deal with the crisis, reduced revenue from taxes as economic activity fell, and a postponement of the due date for state income taxes from April to July. On the other hand, the state received an emergency payment under the federal CARES Act of $9.53 billion. So, by the end of the 2019-20 fiscal year, the state still had unused borrowable resources of over $37 billion (down from the starting $51+ billion). Even without the federal CARES Act funding, the state would have had $27.7 billion at the end of June 2020 (the end of fiscal 2019-20) in unused borrowable resources.

It is unclear at this point what, if any, additional federal receipts may arrive. But, on the plus side, there will be postponed receipts as postponed income taxes are filed this month. We won't know what those receipts will be in total until August.

Of course, you can't drain your cash reserves and engage in internal borrowing indefinitely. And if you fill up accounts outside the General Fund with IOUs instead of cash, those outside accounts will not be able to fund whatever activities they are intended to provide. There is much uncertainty about the course of the economy, the course of the coronavirus, the politics of the federal government, the possibility of a vaccine, etc. However, the state was in a better position to undergo the coronavirus crisis than it was the Great Recession of 2008.

The future lies ahead.

The June 2020 statement of the controller, and other monthly cash statements, are at:
https://sco.ca.gov/ard_state_cash.html