We’ve just come through our annual days of shopping deals. Hillsdale and Tanforan were packed on Black Friday as stores enticed shoppers with one-time-only deals. Moreover, if surveys are accurate, not a lot of work was done on Cyber Monday when online deals kept office workers away from their normal duties. There seems to something is the American psyche that says spend, spend, spend! If the deals are good enough, and if the family budget can afford it, why not?
Unfortunately, that same spend, spend, spend mentality pervades the thinking of Sacramento politicians. Now that Democrats hold a two-thirds supermajority in both legislative houses, there is little to stop them from acting on the impulse, whether the state budget (the ever-increasing money you shell out in taxes) can accommodate it or not.
The impulse to spend was evident in the reception given the release two weeks ago of the Legislative Analyst’s Office “California’s Fiscal Outlook” that purports to show budget surpluses as far as the eye can see. Senate President pro Tem Darrell Steinberg said in part that the report means the state can “expand worthy programs for people and our economy.” Assembly Speaker John Perez chimed in that the state can now “make use of one-time money and stronger revenues to reinvest in California families.”
Progressive/liberal groups added to the chorus. According to Capital Public Radio News, Chris Hoene, executive director of the California Budget Project, immediately called for reinvestment in “programs like welfare.” These statements are all Sacramento speak for spend, spend, spend!
Yet California is not in any position to turn on the spending spigot, no matter what the progressives in Sacramento think. It turns out the so-called budget surpluses are mostly illusory anyway. Yes, the projected surpluses are based on the usual political smoke and mirrors employed by politicians and bureaucrats. Who could have guessed at such a thing?
The LAO report rests on the proverbial “rosy scenario” with California’s projected economic growth rate far outstripping that of the nation as a whole. Carson Bruno of Stanford University’s Hoover Institution points out that the LAO report assumes that between 2014 and 2020 California’s unemployment rate will be an average of just 0.4 points above the nation’s. This in a state where the current unemployment rate is a full 1.4 percent above the national average, and in one county the unemployment rate is over 25 percent.
The LAO itself makes clear that repaying much of what was borrowed from state special funds to cover increased spending over the last decade (over the last decade total Sacramento spending has increased by almost 40 percent) is not included in the report’s assumptions. Let the report’s authors speak for themselves, “liabilities, including some items on the governor’s wall of debt and the state’s huge retirement liabilities (particularly those related to the California State Teachers’ Retirement System), remain unpaid under our forecast. If additional payments are made in the future to repay these liabilities or to provide inflation adjustments to universities, the courts, state employees and other programs, the operating surpluses in our forecast would fall significantly below our projections” (italics mine).
The “huge retirement liabilities” of the California State Teachers’ Retirement System deserve a special look. Carson Bruno warns us that CalSTRs has an unfunded liability ranging from between $71 billion to $167 billion. Because of that, according to the LAO, the state should be adding at least $4.5 billion annually in contributions to reduce that sum and strengthen the plan. Such needed payments would greatly reduce or eliminate any of the supposed surpluses over the next few years.
If this isn’t bad enough, just about the time the LAO issued its rosy scenario, California was named, for the third year in a row, the “worst run state in America” by Wall St. 24/7. Its ranking notes that, “California carries an A credit rating from Standard & Poor’s, and an A1 from Moody’s — both worse than any other state except for Illinois. Explaining its rating, Moody’s pointed to the state’s history of one-time solutions to resolve its budgetary gaps. It also noted the state’s “highly volatile revenue structure,” due to its overreliance on wealthy taxpayers.”
We are living in the worst run state in America, facing huge retirement liabilities, with unrestrained politicians salivating over an economic report that upon further review does not inspire confidence in its supposed surplus projections.
It’s one thing for families to spend big on holiday shopping. Good deals and confidence in the family budget allow for shopping sprees on Black Friday or Cyber Monday. But it’s another thing altogether for Sacramento politicians to take flimsy projections and turn them into excuses for “expanding,” “reinvesting” or just plain increased spending. We can and should do better.
John McDowell is a longtime county resident having first moved to San Carlos in 1963. In the intervening years, he has worked as a political volunteer and staff member in local, state and federal government, including time spent as a press secretary on Capitol Hill and in the second Bush administration.