Politics

New Republic Embraces Fiction of California's Balanced Budget

Everything's fine, as long as you completely ignore the public pension crisis that is bankrupting us all!

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When The New York Times began the narrative of California's alleged economic recovery, reporter Adam Nagourney was at least vigilant enough to moderate his claims with plenty of hedging about the state's still-high unemployment numbers, erratic revenue outcomes and the ever-present pension crisis.

Not so at the New Republic. According to David Dayen, the crisis is all over and it's all thanks to progressives! Dayen begins:

Earlier this month, California Governor Jerry Brown strode to a podium in Sacramento and said something that, a few years ago, seemed as unlikely as a UFO landing atop the state Capitol: The initial projection for the state budget showed a balance. In fact, for the 2013-2014 fiscal year, there's a surplus of $851 million. The nonpartisan Legislative Analyst's Office, which just a couple months earlier estimated a deficit of $1.9 billion, concurred with the governor: Revenues matched expenditures in the initial outlook for the first time since before the Great Recession.

This was a surprise, to say the least. After all, in 2009, California carried a deficit as high as $42 billion. Marathon all-nighters in the legislature and unsatisfying 11th hour deals were commonplace. At one point the state paid obligations with IOUs because it ran out of money.

You can't use projections to declare an economy sound again. You simply can't. Interesting how Dayen went all the way back to 2009 for a deficit number when the state was carrying a $20-something billion deficit just last year. Why? Partly because the state had incorrectly projected its pending state income tax revenue for 2011 filings and came up billions short in the spring.

The Reason Foundation's Leonard Gilroy noted at Breitbart.com's Big Government what really happens with California's budget. They almost always declare that it's "balanced" and then adjust downward as reality asserts itself and makes a mockery of the projections:

Last November, for example, California's nonpartisan Legislative Analyst's Office wrote, "The 2012–13 budget assumed a year–end reserve of $948 million. Our forecast now projects the General Fund ending 2012–13 with a $943 million deficit." …

To make his budget proposal look balanced this time around, Gov. Brown makes another series of optimistic assumptions, including that the tax increases California voters approved last November won't hurt the economy and the state's economy and tax revenues will grow; that California's millionaires, hit with higher taxes again, won't pack up and move to low-tax states; that California's housing market will improve and home prices will go up; that President Barack Obama and Congress won't do anything to hurt the national economy; and that the stock market will rise.

We still don't have an answer for what will happen to education budgets if the revenue projections are off (beyond the fact that as pointed out earlier today, a big chunk of the money for the tax increase meant to go to schools is not actually going to schools).

Dayen credits the state's progressive movement for fixing California's budget by marginalizing and essentially eliminating political opposition:

Until 2010, the legislature needed a two-thirds vote to both pass a budget and raise taxes, leading to several incidents of brinksmanship with Republicans, who gerrymandered the state just enough (in a corrupt bargain with the majority Democrats) to hold on to a bit over one-third of the legislative seats. Robbed of the tools of budget-balancing, majority Democrats had to make painful concessions in order to get Republicans to pass a budget.

Piece by piece, reformers started to dismantle these obstacles, using the state's ballot initiative process. In 2008, voters approved an independent redistricting commission to break the incumbency protection racket and make the legislature look more like the electorate.

Er, in 2008, registered Republicans comprised just a little less than a third of the California electorate. And no doubt a significant number of the 20 percent independent voters probably vote Republican in any given election.

And the new redistricting intended to break the "incumbency racket"? Three whole incumbent state legislators lost their seats in 2012. And thanks to the state's new top-two runoff system, two of them were Democrats who lost to other Democrats. The redistricting certainly did change the electorate representation, but it had nothing at all to do with getting rid of incumbents or making districts more competitive.

Dayen's remarkably curious explanation of California's budget woes focuses entirely on the state's inability to just raise taxes whenever it wants to:

California's recent budget problems resulted from the deepest economic downturn since the Great Depression. But the state's difficulty in addressing them was as much a political crisis as a budget crisis. Since the passage of the notorious anti-tax Prop 13 in 1978, which capped property tax rates and made it nearly impossible to raise revenue through the legislature, California has been locked into a revenue structure that, outside of boom times, proves too small to finance the public services that residents desire.  Several tax cuts during the late 1990s dot-com boom, and a huge $5.5 billion annual cut to the vehicle license fee passed by Arnold Schwarzenegger in 2003, only exacerbated this imbalance.

"The public services that residents desire" is a nice, vague obfuscating way of talking about government employee costs without having to actually address that significant, serious budget problem. In fact, it doesn't mention employee costs at all. It also doesn't mention the word "pension," even once. In this lengthy analysis of California's alleged fiscal recovery it makes absolutely no mention at all of the state's greatest source of debt and the greatest threat to the state's actual recovery. The California Public Employees' Retirement System (CalPERS) recently reported it has recouped billions in investment losses (despite posting dismal returns for the past couple of years), which is good. But according to accounting figures by Moody's Investment Service, the state may be sitting on about $300 billion in unfunded pension liabilities, with another $100 billion needed for retirement health care.  Gov. Brown's budget does address making dents in a $28 billion wall of debt, but those debts are completely separate from the state's pension bomb, one that Dayen doesn't even acknowledge.

He does, of course, talk about austerity and budget cuts, which should set off any Californian's bullshit detector:

But while progressives put the coalition in place to move past austerity politics, Governor Brown largely kept in place the austerity budgets of previous years. The exception is education, where in many respects the state's hand is forced: because of a formula set years earlier by Proposition 98, education spending must rise proportionally with increases in the overall budget. But much of the rest of the budget remains flat, particularly for social programs like welfare-to-work, healthcare for the poor and elderly, and child care, where the state has cut $1 billion over the past four years, enough to accommodate 110,000 families. At one point during the darkest days, legislative Democrats, quick to prove wrong taunts about overspending, unfurled a 150 foot-long scroll listing $19 billion in cuts they adopted from 2003 to 2008. Most of that scroll has not been rolled back.

Here's a couple of graphs of state spending from 2007 to 2012 courtesy of those few obstructionist Republicans left working at the state legislature:

Somebody show me where the austerity is on those charts. Brown's latest budget has a five percent increase in spending.

Now if Dayen wants to argue Californians are getting less bang for their buck when it comes to "public services," we can certainly make that case. Talking about such matters, though, would require progressives to stop ignoring the elephant in the room – where that increasing government spending is actually going.

Oh, also, Dayen makes no mention of that godforsaken, stupid high-speed train, which is likely to take any recovery down with it should Brown actually commit any more state money to it. But that issue, again, would require addressing the matter of union patronage in state government spending.