I noted with interest some comments that Standard & Poor’s made this week about California’s fiscal situation. They amount to a check on the euphoria that comes with the increasing revenue filling California’s coffers.
While the rating agency praised California for pulling out of a financial hole, there were warnings about possible future financial difficulties because of California’s debt and reliance on a temporary tax.
Revenue continues to pile up in the treasury with reports that June revenue collections beat expectations from both the governor’s Department of Finance and the Legislative Analyst’s Office, which predicted even better numbers than the governor.
The Standard & Poor’s report pointed to a “weaker” element of California’s financial calculations by having final numbers determined by political negotiations rather than independent analysts.
While this charge would seem to encourage the use of the higher LAO’s numbers, the political equation is important for this state because of recent history. Too many times in this state a governor and legislators have agreed to spend a rush of new money only to see it disappear.
Governor Brown knows that the fiscal health of the state is tenuous because it relies so heavily on upper income taxpayers. Standard & Poor’s points out a trap the state could face. The Los Angeles Times cited the Standard & Poor’s warning: “Most likely, the state’s revenues won’t outperform expectations indefinitely… In fact, it’s heading for a known-in-advance revenue cliff in fiscal 2019 when the personal income tax hike portion of Proposition 30 expires.”
While spending interests are hoping to make mid-budget year “corrections” and spend some of the money not marked for the budget, we should take the Standard & Poor’s warning to heart and remember the famous George Santayana quote: “Those who cannot remember the past are condemned to repeat it.”