Posted on 07/31/2004 10:04:12 AM PDT by calif_reaganite
Mr. President:
Over the last few years, we have seen a variety of inventive ways to balance the budget on paper while racking up multi-billion deficits. So in preparation for this budget, I asked the Legislative Analyst’s Office two simple questions.
First, how much are we taking in from the revenue structure of the state – all of our taxes and fees and interest earnings?
And then I asked, how much are we actually spending for general fund programs?
In other words, how much is this family actually earning and how much is it actually spending?
And it turns out that last year, we spent $4 billion more from our general fund than we received as income.
Under this budget, according to the LAO, the revenue structure of this state will actually generate – in round numbers -- $76 billion. And it will spend $81 billion on general fund programs. We’ll “earn” $76 billion and spend $81 billion. The deficit – nearly $5 billion – will have to be borrowed.
And that assumes every budget assumption works perfectly.
In our last budget debate, one senator said, “that’s OK. Borrowed money is real money.”
If you believe that, try this one out on your spouse – “Honey, we spent $5 billion more than we earned last year, but don’t worry – I just put the difference on our charge card.” I wish you better luck with that one than I know I would have with my wife.
We’re told, “at least this is a step in the right direction.” No it’s not – it’s a $5 billion step in the wrong direction.
Let me put it another way. Over the next year, inflation and population will grow at a combined rate of 4.2 percent. Our revenues will grow 6.7 percent. So, this is still NOT a revenue problem. Revenues continue to grow faster than inflation and population combined. But here is the problem -- spending will grow 7.4 percent. That’s a faster annual growth rate than under the previous administration’s 7 percent. Our annual spending is actually growing faster now than it has over the past five years.
The widening gap between revenues and expenditures continues to be papered over with borrowed money.
Less than three months ago, on May 1st, the total amount of state general fund supported debt (this includes all the bond issues) was $33 billion. By the end of this budget year, that debt will have grown to nearly $51 billion. That is a 54 percent increase in debt in a mere 14 months. Borrowing by this state is now completely out of control.
Here is what we have:
That is the budget we are about to vote on. “Never mind that,” we’re told, “the budget doesn’t raise taxes” – or, at least, it doesn’t raise them by much.
But here’s the fine point of it: resistance to tax increases only works IF IT IS ACCOMPANIED BY RESISTANCE TO SPENDING INCREASES.
As I have repeatedly warned – YOU CANNOT PAY FOR SOCIALLY LIBERAL PROGRAMS WITH FISCALLY CONSERVATIVE POLICIES. You cannot be both things. IT DOESN’T BALANCE. Fiscal conservatism means not only restraining taxes but restraining spending.
“Never mind that,” we are told. “We’ll control spending increases sometime in the future.” This is a song we hear with every budget – like we hear “Jingle Bells” at Christmastime. Let me remind you that successful diets don’t start in the future. They ALWAYS begin in the present.
And here’s the problem with the future diet that we are promised. This budget also obligates us to make enormous balloon payments beginning in 2006. Not only are we spending more than we can afford this year, but we are agreeing to even bigger obligations just 24 months from now. We will have balloon payments due to local governments, to the pension system, to the public schools, to the universities. Some diet.
Last year when we took up the budget (a budget that we also were told was “balanced”), I warned that it was “a rotting porch just waiting to collapse.” We ended up spending $4 billion more than we took in. This year – if all goes well – we will spend $5 billion more. The porch is gone. Now the very financial structure of our house is being eaten away.
Forty years ago, in 1964, when California admirably met the needs of its people, it spent $202 per person from both general and special funds. That’s $1,160 adjusting for inflation. $1,160. You are about to vote on a budget that spends $2,878 per person. And let me ask you – where are the roads, where are the aqueducts, where are the power plants, where are the top-flight schools and universities that our parents delivered 40 years ago?
What will be our generation’s answer to history? “Sorry, it’s the best we could do?” Shakespeare’s words come to mind: “Age, thou art shamed. Rome, thou hast lost the breed of noble bloods.”
That is exactly what I want. Go look at that thread on the national budget. That is exactly what they did. Even though the raw numbers for the national budget are larger, their percentage of GDP is smaller than in the past.
This is what I want to know about the state budget. What is the states budget in relation to GSP and is that getting bigger or smaller? All we ever hear about are the raw numbers and if I'm reading the national stuff right, that is not neccessarily what is important.
State: California Industry: Total Gross State Product Gross State Product (millions of current dollars)* 1977 229,468 1978 263,556 1979 295,112 1980 328,188 1981 368,508 1982 393,176 1983 426,033 1984 484,473 1985 529,380 1986 567,411 1987 624,643 1988 685,095 1989 743,472 1990 798,879 1991 814,743 1992 831,576 1993 847,879 1994 879,041 1995 925,931 1996 973,395 1997 1,045,254 1998 1,125,331 1999 1,213,355 2000 1,330,025 2001 1,359,265Definition: "Current-dollar GSP"
"Gross State Product (GSP) is the market value fo the goods and services produced by the labor and property located in a state. GSP for a state is derived as teh sum of the GSP originating in each industry in the state. Current-dollar GSP is not adjusted for inflation."
Too bad someone doesn't bring this up to Tom Sullivan. I'd like to see him do a show on it.
Amerigomag... can you shed any light? Would it be more appropriate to chose only certain funds?
The GSP numbers for 2002 won't be published until December 15, 2004, so the analysis is limited. Also, BEA also publishes something called "Chained-dollar GSP" which I did not use as I did not fully understand its derivation vs. the "Current dollar GSP" defined in my post above.
State
Fiscal Year Expenditures* % Exp to GSP**
1984-85 44,333,001 9.15%
1985-86 49,257,034 9.30%
1986-87 52,824,420 9.31%
1987-88 55,401,831 8.87%
1988-89 61,260,548 8.94%
1989-90 67,252,683 9.05%
1990-91 72,929,373 9.13%
1991-92 83,002,328 10.19%
1992-93 86,062,899 10.35%
1993-94 85,637,066 10.10%
1994-95 86,109,797 9.80%
1995-96 90,210,003 9.74%
1996-97 95,908,494 9.85%
1997-98 100,176,786 9.58%
1998-99 109,635,318 9.74%
1999-00 122,167,373 10.07%
2000-01 137,654,332 10.35%
2001-02 145,842,698 10.73%
2002-03 161,511,321
2003-04 165,850,388
2004-05 154,143,966
*Expenditures from Pivot Tables - "All Funds"
lao.ca.gov/LAOMenus/lao_menu_economics.aspx
**FY 1984-85 Expenditures / 1984 GSP (etc.)
Chained dollar GSP is based on the average weights of goods and services in successive pairs of years. It is "chained" because the second year in each pair, with its weights, becomes the first year of the next pair. The advantage of using the chained-dollar measure is that it is more closely related to any given period covered and is therefore subject to less distortion over time. Constant dollar GSP is tied to a specific year (or possibly current dollars). But, if you are looking at a trend, both chained dollars and constant dollars should provide a similar general trend.
As far as funds go, the general fund expenditures show how much the state spent on services and programs and does not take into account bond expenditures.
Sen. McClintock's statement on California POBs:
http://www.freerepublic.com/focus/f-news/1184958/posts
Still think Tom should do a show on this.
You can email him live during his show at www.tomsullivan.com... he edits closely, so go easy.
That's probably what I will do. I'm looking up that budget cut. I have a bee link if you need it. I'm doing more research.
>>Wow, good work
I'm not sure. Calif_reaganite provided some good input... I'm not sure the numbers I included are appropriate for the analysis. When I have a chance, I'll go back and look at just the general fund and bond fund line items, as well as the chained dollar values. But that also gets murky when there has been so much borrowing between funds and between years. There are probably many distortions in the data that I am not familiar with that cause swings in the percentage relationships.
Also, while the GSP #'s I used said they were not inflation adjusted, there was no description (that I found) re: the state numbers. For analysis purposes, they need to be the same (i.e. either both need to be raw numbers, or both similarly adjusted).
Lastly, the outrageous spending seems to have happened in the last couple years, as the legislature and past governor reportedly decided to spend revenue generated by income taxes from the dotcom frenzy. If true, a large growth in percentage should be reflected for the years following the frenzy... but without the GSP values, it can't be demonstrated. [sigh]
FF: Who's Tom Sullivan?
Calif_reaganite: Thanks for the input! If you have any more input as to what would be most comparable, I can crunch a number or two. :-)
Tom Sullivan is KFBK's business editor and afternoon talk show host. Tom began working at KFBK in December, 1980. He provides business reports twice an hour during the morning, noon and afternoon news.His show has consistently been the number one local talk show in Sacramento. Sullivan began his duties as a talk show host in July, 1988 when Rush Limbaugh left KFBK for his national show in New York. Tom is a Seattle native who has lived in Sacramento since 1975. In addition to his schedule at KFBK, Tom is with The Sullivan Group of Wachovia Securities and is also the financial editor of KCRA-TV (Channel 3).
The weakness in the analytical model you've proposed is who is determining "market value". Usually it's a government bean counter or, worse yet, the industry itself providing the raw information to the auditor.
KISS
California is spending FAR more than it takes in. It needs to spend less regardless of the efficiency of governance/oversight.
California's spending problems are not centered around state employee salaries or benefits. The problems involve the continuous expansion of the public largess and expansion of the classes entitled to to that public largess.
It is not a chicken and egg dilemma. It is a fundamental, simple, economic truth: If you reduce the amount/level/quality of the service and limit those entitled to the service the cost to provide the service will decrease proportionally.
This principal applies equally to public education, public health and the cost of public judgment/punishment.
Thanks. I agree with your focus. I was trying to respond to Farmfriend's proposed method of demonstrating that we are even more out of control than we used to be!
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