California is still in debt

I am also waiting for all sorts of ideas from lobbyists, special interest groups and legislators themselves for the $150 billion in cash the state is receiving as part of the latest COVID relief package. Combined with the estimated $14.3 billion in state General Fund surplus announced this week, and we have the makings of all sorts of pie-in-the-sky ideas.

One thing to consider, however, is that we still have a growing debt. In 2019, not too long ago, California’s wall of debt was estimated to be $362.9 billion. There is also about $93 billion in unfunded pension obligations and about $85.6 billion in unfunded health retiree benefits. That’s something right?

Much of that obligation originated in those halcyon days of the dot-com boom when people talked about the stock market just going up forever with the Dow Jones Industrial Average hitting 30,000 (well, it did it eventually). At the time, it was about 10,000 and government officials believed its rate of return would remain about 16% to 24% and that meant they wouldn’t have to contribute to retirement packages since they were invested in the market. Retirement packages increased for police and firefighters and spread to other government workers. Now, I’m not here for commentary on whether they deserve it. It just is. And it cost us money in the long term as people retired early and lived longer.

Another thing to consider is that there are economic cycles, and try as we might to prop up and keep fueled and twist and ease, eventually what goes up comes down. That’s what happened with the dot-com bust and that’s what helped ease out Gray Davis. People say it was deregulation and the rolling blackouts but it really was his proposal to triple the DMV fee (or what some would call return to prior levels). People weren’t keen on that, and away he went.

While we got Arnold Schwarzenegger as our governor, then Jerry Brown and now Gavin Newsom, little has been done to fix our state’s reliance on capital gains for a huge source of revenue. That reliance means we have ups and downs with the stock market, and while we have about $20 billion in our rainy fund established by Proposition 2 in 2014, it’s a drop in the bucket, so to speak, on our larger overall debt.

So let’s see, about $363 billion in debt, a budget surplus of $14.3 billion, $150 billion in stimulus funds and about $20 billion in emergency reserves. I wouldn’t head to Vegas, would you? I certainly wouldn’t start thinking about cash bonuses or single-payer health care or any other expensive proposal. I would be thinking the market could drop at any time and I should probably bolster my reserves, and thank my lucky stars we have a small surplus to ease any ills.

Stability is key to any budget. And the ledger never lies. While the American Rescue Plan Act had lots in it to help people who legitimately need it, the Biden administration is already talking about new taxes and inflation is a genuine concern. Here in California, we have seen lots of benefits from both stimulus acts and we can provide some very real short-term relief to get people back on their feet. Let’s do that. Let’s not commit to expensive new programs that require ongoing funding. We simply don’t have that kind of money.

This year’s budget surplus, while great, is a sign of our flawed taxation and budget process. Our state benefits when the stock market goes up and suffers greatly when it goes down. So we should continue to prepare for when it does. After all, Newsom surely doesn’t want to share the same fate as Gray Davis.

Jon Mays is the editor in chief of the Daily Journal. He can be reached at jon@smdailyjournal.com. Follow Jon on Twitter @jonmays.