The Next Time Anybody Insists California Has Recovered, Read This

I have been
pushing
back on claims that California’s economy is
fine and awesome and should be used as a model for other
states’ recoveries. California is doing better these days than five
years ago; but so are most states. However, it’s sheer bullshit to
say that the state doesn’t still have huge, dire economic issues,
and Gov. Jerry Brown, like previous California governors, is
concealing the problems with accounting tricks.

So the next time anybody insists that California’s problems are
“fixed” or suggests that Brown’s handling of the state’s fiscal
crisis should be a model for other states, drop some knowledge on
them, courtesy of David Crane at Bloomberg View. He
explains how Brown (and other governors) is able to trick
journalists into thinking the state of the state is
better than it really is:

They avoided scrutiny thanks to an accounting method known as
“cash-based budgeting,” which recognizes expenses only when cash
changes hands and treats any cash received, even borrowed cash, as
revenue. That’s how New Jersey Governor Chris Christie “balanced”
New Jersey’s budget in 2010: by simply pushing a $3 billion pension
payment from one year into the next.

Similarly, Brown is using cash-based budgeting to underreport
the cost of an employee benefit—retiree health care—by $3 billion.
The governor could have chosen to report the expense at its full
size, but to do that under cash-based budgeting, he would have had
to actually contribute $3 billion in cash to a retiree health-care
trust fund.

That’s exactly what governors are supposed to do. Retiree
health-care expenses, like pensions, are supposed to be pre-funded
in order to protect future generations from having to pick up an
earlier generation’s costs. But Brown chose not to do so, making
his budget look rosier than it is. This shortchanges future
generations, which will have less money for their own services
because they will have to pay off the skipped costs.

Brown is also ignoring a $3 billion in required payments to the
state teacher pension fund, so really there’s $6 billion in
payments unaccounted for by the state’s budget. But thanks to these
games, it’s not counted as debt. And not paying it helps avoid
putting the state back into a spending deficit, and the lack of a
deficit is what folks are pointing to when they insist California
has recovered. Crane notes:

Even though California teacher pensions—and therefore that
debt—are guaranteed by the state, for accounting purposes the state
treats that obligation as off its balance sheet, as if it’s not on
the hook. When the trust fund runs out of money, the debt will
total more than $600 billion.

Crane concludes by pointing out how badly California is leeching
off its citizenry. Despite getting more money from taxpayers than
ever, the taxpayers themselves are getting crap out of it:

Just as California’s budget wasn’t fixed in 2000 or 2007, it
isn’t fixed in 2014. In fact, even though revenue, taxes and fees
are higher now than they were the last time California reported a
balanced budget, in 2007, state spending on most state services is
lower. Spending on welfare, universities, courts and parks is down
more than 20 percent because spending on employee salaries,
pensions, retiree health care, debt service and Medicaid is up more
than 20 percent.

And even with that huge increase in spending on its own workers,
there’s still billions of dollars in debt that’s unaccounted
for.