Dan Walters: Jerry Brown's budget boasting should be put in context

03/04/2013 12:00 AM

03/04/2013 6:33 AM

Gov. Jerry Brown did another victory lap in Washington late last month, suggesting during a national governors' conference that California had shown the way to resolve the federal government's budget woes by balancing the state budget after years of deficits.

It's a drum that he's been beating ever since voters passed Proposition 30, which temporarily raises sales and income taxes by about $6 billion a year. He unveiled a new budget in January that he claims is balanced and during his State of the State address in late January called it "a solid and enduring budget."

But how legitimate is Brown's claim? It's shaky, if one looks at the numbers and assumptions behind the rhetoric.

It assumes that the revenues in the budget are valid, but in fact no one knows whether increasing the marginal income tax rate on high-income taxpayers could lead them to either move from California or shelter their incomes, particularly capital gains, from the state's reach.

The budget also assumes that California's economy will continue a slow but steady recovery, thus increasing retail sales and personal incomes on which those revenues are based. But California's economic future is very cloudy.

It assumes, too, that Brown's fellow Democrats in the Legislature resist pressures from major constituent groups to rescind some of the cuts in health and welfare services, and that the courts can live with continued erosion of financing without imploding.

Even if Brown succeeds in balancing income and outgo during the 2013-14 fiscal year, however, the tens of billions of dollars in debt run up during the previous half-decade of deficits will continue to fester.

The state also faces an ever-mounting burden of servicing bonded debt that has built up over the last two decades – and he wants to increase that debt even more for a bullet-train system of dubious efficacy.

The taxes that voters approved last year are temporary and will, unless renewed, expire just about the time Brown ends his second term, assuming he runs again and wins. That could leave a big hole in the state's finances – unless the economy does resume strong growth and/or those tax increases are made permanent by the Democrats' new legislative supermajorities.

Finally, as Legislative Analyst Mac Taylor has pointed out, Brown's multiyear budget plan ignores ever-growing unfunded liabilities for retirees' pensions and health care.

The State Teachers' Retirement System says it needs $4.5 billion more a year to remain solvent, and a new report released by Controller John Chiang says the state faces an unfunded liability for health care of as much as $64 billion.

Dealing with just those two items, rather than ignoring them, would absorb all of the money generated by the tax increase.

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