MOORLACH UPDATE — May Revise — May 13, 2016

Gov. Brown released his May Budget Revise this morning. Like last year, we provided you and the media five metrics that should be the focus of the state’s budget (see bottom). Instead of expanding and adding new programs, California should be feverishly paying down its massive debts.

I was interviewed by KCRA 3 yesterday, after the Floor Session, and it is below (see http://www.kcra.com/news/stock-market-slump-causes-california-to-face-1-billion-shortfall/39523126).

After a number of questions, all that remained of the interview is that I wanted the state to emphasize addressing its long-term rising unfunded liabilities. We can no longer fiddle on the deck of the Titanic. We must address tomorrow’s concerns today.

BONUS: I was on the Phil Cowan Show on Sacramento’s 1380 AM this morning to discuss the May Revise. The conversation starts at 2:05:16.

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Here’s the link: https://soundcloud.com/phil-cowan1/friday-may-13-2016.

Stock market slump causes California to face $1 billion shortfall

Gov. Brown to address cash crunch Friday

By Mike Luery

A recent slump in the stock market is causing a major cash crunch for California.

"We projected that we were going to take in about $14.9 billion from personal income taxes in the month of April — the most important revenue month for the state," said H.D. Palmer, a spokesperson for Gov. Jerry Brown’s Department of Finance. "We took in about a billion dollars less than that."

The billion dollar hit comes primarily from capital gains — the taxes that people pay after selling a stock at a profit.

"Capital gains is one of the most important sources of revenue for personal income tax," Palmer explained. "(Capital gains taxes are) two-thirds of the state budget. So when the markets sneeze, the budget can catch a cold."

That "cold" could affect kids, especially those needing child care while their parents work.

Nancy Gray is a child care provider in Citrus Heights. She takes care of 14 children with an assistant.

She said that many of her clients are working families that are struggling to make ends meet.

"One of them for a while there was paying me her entire paycheck just to get child care started for her child," Gray said.

Child care is a high priority for the Legislative Women’s Caucus.

"We have put in (the request) to the governor. We’ve asked for $800 million dollars," said Sen. Hannah-Beth Jackson, D-Santa Barbara.

She added that the extra money would "provide an increase in rates," for child care providers.

But child care is not the only demand at the Capitol. There’s also pressure to spend more money to improve California’s crumbling roads.

There are also demands for more dollars for Denti-Cal, where Republicans are asking for an additional $200 million in extra funding for the program that assists low-income Californians.

But Sen. John Moorlach, R-Costa Mesa, a former certified public accountant, said that higher taxes are not the answer.

He added, " We cannot be the band on the deck of the Titanic. We’ve got to start addressing tomorrow today."

And the message from Gov. Brown on Friday is likely to be about belt tightening.

"The worst thing we could do now is commit the state to higher ongoing levels of spending, only to have to cut back when, not if, but when we get to the next economic downturn," Palmer said.

The latest figures from the Franchise Tax Board show that California’s top earners, the 1 percent, pay 48 percent, or nearly half of all the personal income taxes in California .

So when they have a bad day on Wall Street — the Golden State suffers.

Brown is scheduled to provide details of his revised May budget plan on Friday at 10 a.m. at the State Capitol.

Senator Moorlach’s Notes on Analyzing the
Governor’s Coming May Revision
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Evaluating our state’s fiscal condition requires checking key vital signs to determine where our focus must be moving forward.
Here are 5 key metrics you need to know about the status of our state’s fiscal house as we anticipate the Governor’s May Revise:
1. California’s Net Financial Position

Californiahas a $170 billion “net” financial position deficit, with an increase of $54 billion since last year, the largest net deficit of all 50 states. Read the updated California Annual Financial Report (CAFR) HERE.
NOTE: This balance sheet net asset account is derived by tallying the state government’s assets (monetary funds, investments, buildings, roadways, bridges, parks, etc.), less liabilities, and adjusted for investments in fixed assets and restricted funds.

2. Estimates of California’s Unfunded Pension Liabilities Accruing at 7.25+ Percent

CalPERS: $ 96.7 billion
CalSTRS: 72.7 billion

UC Pensions: 10.6 billion

NOTE: For the 2014/15 fiscal year, CalPERS planned for a 7.5% rate of return, but only managed a 2.4% rate of return. This year, some are hoping to have net earnings of zero.This means the unfunded liability for CalPERS as a whole grew $20 billion last year and will grow another $30 billion this year!

3. Current Unfunded Retiree Medical Liability


California has the nation’s highest unfunded retiree medical liability at $80.3 billion (this figure INCREASED by $6.3 billion since last year’s report).

4. California’s Unaddressed Transportation Infrastructure

5. California’s Business & Economic Competitiveness

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