California’s Debt Folly –Unnecessary spending on retiree health care is crushing the Golden State.
California has asked Washington for $14 billion in Covid-related support, in addition to the $8 billion already provided by the CARES Act. But because the state, with an annual General Fund of $150 billion, incurs more than $24 billion of annual expenses for pensions and other post-employment benefits (OPEB) — including post-employment subsidies for health […]
How to Free the Budget Hostages
Governor Newsom’s Revised Budget proposes cuts to programs in the event more federal COVID funds are not provided. We propose a solution that would free the 10 programs below and improve the state’s structural deficit without jeopardizing the financial security of retired state employees. The first eight programs would be funded by savings from substituting Oregon’s or Colorado’s programs for providing […]
More Budget Do’s and Don’ts
Having served in state government during two difficult budget periods (2003-4 and 2009-10) and on the Volcker-Ravitch State Budget Crisis Task Force in 2012, I have participated in and studied many bad and good state budget practices. Some takeaways: Maintain Perspective. As Governor Newsom pointed out last week, the state’s expected shortfall this time is […]
California’s Request For Federal Funds
About Governor Newsom’s request for $14 billion of additional federal support– Even when added to the $8 billion already provided to California by the CARES Act, the total ($22 billion) would be less than half the $48 billion proposed for California under the HEROES Act passed by the US House of Representatives last week. But, […]
California Isn’t Colorado
Recently California joined with Colorado in asking the federal government for more COVID-related financial support for states but the two states have very different needs for the money. California spends $120 per resident — nearly $5 billion per year — on insurance subsidies for retired state employees (known as “OPEB”) while Colorado spends only $5 […]
Budget Do’s and Don’t’s
Dear Legislators, Soon you will be addressing the budget. Three suggestions: Permit no cuts, layoffs or borrowings before retirement spending is trimmed. School districts, UC, CSU, community colleges and the state are diverting $25 billion per year to retirement spending that should be reduced before services are cut, employees are laid off, or funds borrowed. […]
School Finances
School budgets will be a big issue facing legislators upon their return to Sacramento. In 2012, voters passed a ballot measure entitled “Temporary Taxes to Fund Education” that, when combined with a rising stock market, sharply boosted school funding (“Proposition 98 Funding”): But even that sharp increase in revenue could not keep pace with the […]
For Whom the Budget Bell Tolls
The California Department of Finance is in the process of preparing the May Revised Budget. A difficult process every year because of the state’s dependence on unpredictable capital gains taxes, this year DOF must also contend with a COVID-related revenue reduction. Absent reform, that bodes ill for discretionary programs that, even in good times, fare relatively poorly. See below […]
LA Should Reform Before Furloughing
Sunday, Los Angeles Mayor Eric Garcetti warned of employee furloughs to help meet an anticipated $600 million revenue shortfall. Before LA furloughs workers providing important services, the city should save up to $300 million per year by emulating the City of Glendale in reforming and means-testing a subsidy currently provided to retired employees. LA provides […]
Pension Math
Lately we are often asked about the impact on pension costs from a stock market decline. Our answer might surprise you. On December 31, 1999, the Dow Jones Industrial Average closed at 11,497. That fiscal year, the state spent $1.3 billion on pensions. 20 years later, the DJIA closed at 28,462. That fiscal year, the […]