Excellent!
HaPPy 4th of July to you, calcowgirl!
FRom the LAO’s May Revision for 2007-2008 budget
http://www.lao.ca.gov/2007/may_revise/may_revise_051507.aspx
Additional Risks Warrant More Caution
Every annual state budget has some legal uncertainties, potentially higher costs, and revenue estimates subject to downward adjustments. Yet, even after accounting for the overly optimistic assumptions discussed above, there are other risks and pressures contained within the administration’s proposed 2007-08 budget plan which—if occur—would put it out of balance.
- Legal Issues. Since January, the state prevailed at the appeals court level for a case involving California Work Opportunity and Responsibility to Kids (CalWORKs) grants. However, the case has been appealed to the California Supreme Court. In addition, the state faces a number of other court cases with sizable fiscal liabilities. For instance, the state is currently on the losing end of cases involving the constitutionality of a fee on limited liability corporations, the manner in which the state handles unclaimed property, and the state’s reduction of a required payment to a fund for retired school teachers. In total, these legal risks could exceed $2 billion (primarily of a one-time nature). In addition, the state is currently dealing with a variety of federal lawsuits related to the correctional health care system. While the budget plan includes many costs associated with these lawsuits, the full magnitude of the associated costs remains unknown.
- Revenue Assumptions. As discussed in the education section of this report, the lower-than-expected 2005-06 property tax receipts by school districts is not yet fully understood. If this reduction continues in the current and budget years, the state would be exposed to $660 million in additional costs. This amount is in addition to our lower property tax forecast based on the real estate outlook. In addition, as noted earlier, the level of revenues that would be received by the proposed sale of EdFund is subject to uncertainty.
- Retiree Health Unfunded Liabilities. Like the vast majority of governments across the country, the state has not funded the estimated costs of future retiree health benefits as they accrue. Instead, the state uses a “pay-as-you-go” funding system where costs are paid as benefits are used by retirees. As a result, the state has a large unfunded liability for the benefits that are earned now but will be paid for later. On May 7, 2007, the State Controller released the state’s first actuarial valuation which identified this unfunded liability as totaling $47.9 billion. In order to fully fund retirees’ future benefits and eliminate this liability over the next three decades, the state would have to begin setting aside an additional $1.2 billion annually. These amounts will grow each year that the state continues its pay-as-you-go approach. Our estimates do not account for these higher costs that will need to be paid at a future date.
July 03, 2007
Death of a Gimmick
SACRAMENTO -- A gimmick used to help balance Gov. Arnold Schwarzenegger's first three state budgets died when his administration decided not to appeal a court decision Tuesday blocking a pension bond.
His first budget in 2004 proposed issuing a $929 million bond to make part of the state's annual pension payment, arguing that voter approval of the debt was not needed because the pension payment is an "obligation imposed by law."
A taxpayer group, not buying the argument, got the courts to block the bond. The next two state budgets assumed that the state would prevail on appeal and issue a pension bond, eventually scaled down to $560 million.
The mythical revenue from a bond issue unlikely to be approved by the courts, as nonpartisan Legislative Analyst Liz Hill noted, was nonetheless used to help the spending plans appear to be balanced.
A lower court ruling blocking the bond issue was upheld Tuesday by the Third District Court of Appeal. The decision not to appeal was foreshadowed earlier this year when the fourth budget proposed by Schwarzenegger assumed no pension bond.
"This is a great Fourth of July gift to Californians," said Harold Johnson, a Pacific Legal Foundation attorney. He represented the Fullerton Association of Concerned Taxpayers.