After years of red ink, Gov. Jerry Brown said on Thursday that California’s $96.7-billion general fund is now poised to end next year with a surplus, thanks to years of deep budget cuts and billions in new taxes approved by voters last year.
And church bells rang, and children danced in the streets, and lovers held hands and dreamed.
Except . . .
Brown’s budget predicts only the second budget surplus in the last decade, with an $851-million surplus projected at the end of the 2013-14 fiscal year -- if all his proposals are approved by lawmakers.
If? Actually, this prediction of a surplus is based upon Brown's estimates that tax revenues will be $98.5 billion and spending cuts will bring spending down to $97.7.
What could go wrong?
Well, first of all, assuming Brown's hopes and dreams come true, there is not a wide margin for error there. But there is a serious problem with that assumption because his predictions have not come to fruition. Jus a year ago, it turned out that - oops! - they overestimated revenue and had a deficit of $9 billion. And the numbers for November showed that revenues were again falling under estimate . . . as people and businesses left the state.
So, there is that. Next up, are the Sacramento crowd, with a Democratic supermajority, really going to approve his spending cuts. He does not have them in hand and there are a lot of special interests who do not want to see cuts.
One group are public employee unions, whose unfunded pensions are presently estimated at over $500 billion. This is due to the fact that the rate of return is guaranteed by contract with the state and if the market cannot supply it, the taxpayers must make up the difference. That liability is remarkably absent in Brown's analysis.
Meanwhile, while the media covered Brown extensively today, John Chiang said a few things quietly yesterday:
December's sales tax receipts were affected by a large timing issue at the end of the calendar year. While $1 billion of sales tax was deposited into the Board of Equalization's bank account on December 31, those dollars were not transferred to the General Fund for another two days. Because the Controller's monthly cash report shows General Fund balances reported by close of business on December 31, the $1 billion of late-deposited December sales tax dollars will instead appear in January's report. Without accounting for this timing issue, total revenues fell $896.6 million below (-9.6 percent) monthly estimates.
Personal income taxes in the month of December came in $767.6 million above (13.4 percent) monthly estimates contained in the 2012-13 state budget. Corporate taxes came in $445.9 million below (-31.2 percent) those monthly estimates.
The State ended the last fiscal year with a cash deficit of $9.6 billion. As of December 31, that cash deficit totaled $24.2 billion and was covered with $14.2 billion of internal borrowing (temporary loans from special funds), and $10 billion of external borrowing.
So 2012 ended overall in debt and with projections of revenue unmet.
Anyone taking bets on a surplus?