California Budget: The Cash View

California budget numbers that you see in news stories are generally taken from what the legislature enacts and the governor signs. The state uses an "accrual" method of accounting which assigns inflows and outflows to the time period they are associated with rather than when actually received. For example, you may pay your state income tax in mid-April, but it is associated with the calendar year that ended in December. 

Although there are many reasons to use accrual accounting, it is subject to manipulation. The rules are whatever the legislature says they are. But we can look at cash accounting, as provided by the state controller, for another view. The controller provides monthly cash figures on receipts, disbursements, and reserves. Below, for example, are disbursements (spending) by fiscal year going back to the late 1990s.

I have adjusted the figures for inflation using the California Consumer Price Index (CPI-U). We can disbursements ramping up in the late 1990s during the dot.com boom which peaks in fiscal year 2000-01. Spending falls during the dot.com bust, reflecting a budget crisis culminating in the recall of Governor Gray Davis in 2003-04. Spending recovers under Governor Schwarzenegger during the housing boom. But that boom turned to bust in 2007-08 and the Great Recession ensued. Spending generally declined until 2011-12 (Jerry Brown's first budget), then rose until the pre-pandemic peak in 2019-20. Surprisingly good revenue and federal aid kept spending from falling thereafter. And with lots of money coming in under Newsom, we see spending shooting up last year (2021-22).

The state has various reserves specifically linked to the budget. But there are funds outside the general fund and those specific reserves from which the state can draw, at least within the fiscal year to deal with seasonality in revenue. In some cases during past budget crises, it has been able to draw on resources even across fiscal years. The total cash available for such purposes - which includes the specific reserves but includes others - is termed "borrowable resources." If you subtract out internal cash borrowing from those resources, you get the remainder which is termed "unused borrowable resources" and is shown on the table below as a percent of disbursements as of the end of each fiscal year.

As can be seen above, the cash cushion at the end of each fiscal year floated in the 10-15% range. However, the housing bust/Great Recession pulled the cushion so low that the state ended up issuing IOUs (Revenue Anticipation Warrants) to those it owed money to during the summer of 2008 (2008-09). However, a combination of slow economic recovery and tax increases under Governor Brown kept the cushion rising until it reached about 35%. The pandemic drew down the cushion below 25% (still well more than 10-15% during the pre-Great Recession period). But by last fiscal year (2021-22), the cushion was almost back to its prior peak. Indeed, as the chart below shows, not only was the cushion growing, it was growing faster than what had been forecast when the budget for 2021-22 was adopted. At the close of the last fiscal year, that state had unused borrowable resources of well over $70 billion when it had been forecast to have "only" around $60 billion.

In short, the state has a very big cash cushion at its disposal now, which includes - but is bigger than - the reserves directly linked to the general fund. There is currently a sense that we are at risk for a recession. Were one to occur, the large cash cushion we are sitting on would likely prevent the kinds of budgetary crises experienced in the past.

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Note: Cash figures on the various charts above can be found at:

https://sco.ca.gov/ard_state_cash.html. 

California CPI data were taken from the Dept. of Industrial Relations figures at:

https://www.dir.ca.gov/oprl/CPI/EntireCCPI.PDF.