Governor’s Tax Hikes and State Excesses Won’t Erase ‘Wall of Debt’

Skippy Massey
Humboldt Sentinel

The Governor means business by enacting his tough set of fiscal reforms.  He’s broken Sacramento’s legislative partisan gridlock and delivered the budget on time.  But the ink is still dripping– and curbing Mr. Toad’s Wild Ride is going to be a tough sell.

The compromise tax hike initiative supported by Governor Jerry Brown won’t raise enough revenue to eliminate California’s whopping $34 billion “wall of debt” in four years, according to a report from the state Department of Finance, the Sacramento Bee reported Monday.

The Bee’s report doesn’t paint a pretty picture for the Golden State.

The Sentinel has been following the State budget and the Governor’s attempts at reigning an out of bounds roller coaster ride back into fiscal balance.

Red Ink: Details of the ‘Wall of Debt’

Last year, Brown introduced the ‘wall of debt’ concept to illustrate various forms of borrowing by the state over the past few years.  Think of it as the opposite of Winco’s ‘wall of values.’  It’s bad, very bad, and it ain’t no bargain like two boxes of Kraft Mac ‘n Cheese for a buck.

According to the Department of Finance report, the wall of debt currently is at $34.2 billion and would drop to $8.9 billion by the end of fiscal year 2015-2016– that is, if voters pass the compromise tax hike plan in November.  The projection falls short of Brown’s goal to eliminate budget-based borrowing in four years with the approval of the tax hike, the Bee said. 

California’s borrowing from special fund accounts has already reached nearly $4.3 billion, more than five times the amount from June 2008.

 Details of the Compromise Tax Hike Plan

The compromise tax hike plan — developed by Brown and supporters of the “Millionaires Tax” to help balance the budget – would:

• Increase the personal income tax by one percentage point for individuals who earn $250,000 annually or couples who earn $500,000 annually; and by two percentage points for individuals who earn $300,000 annually or couples who earn $600,000 annually.
• Extend the income tax increases on wealthy residents from five to seven years.
• Increase the sales tax by a quarter of a cent.  The sales tax hike would expire in four years.

The combination of taxes would raise an estimated $9 billion over the next fiscal year.

Last month, Brown signed the fiscal year 2012-2013 budget agreement, which factors in presumed revenue coming from the compromise tax hike plan.

 More Red Ink

We still have the Governor’s multi-billion-dollar building proposals for a high speed bullet train ($4.7 billion) and the massive twin water tunnels ($14.7 billion) for the southern portion of the state to contend with.  Together, those two projects will cost nearly $20 billion—and that’s just for starters.

The good news, perhaps to many, is that the Governor has promised he’ll apply a tight tourniquet to the ever-widening costs of public pensions with his serious reforms next year, cutting some of the flow of the State’s hemorrhaging red ink.

 Red Herrings

Bruce Anderson of the Anderson Valley Advertiser brought us the following gem regarding the State Parks fiasco the Sentinel reported on last week. 

You remember the scandalous story:  $54 million dollars was ‘found’ in two hidden funds, causing longtime State Parks Director Ruth Coleman to resign and her chief deputy, Michael Harris, to be fired after the missing money was discovered.

Mr. Anderson noted:

“Manuel Lopez, former deputy director of administrative services for the Department of Parks and Recreation, told the Sacramento Bee that he informed agency Director Ruth Coleman about a $20 million surplus in the Parks and Recreation Fund ‘at least five times over approximately a five-year span.’

“Nonprofit groups and local governments helped raise money and assumed responsibility to keep the 70 state parks open past a July 1 closure deadline.  The attorney general and state finance officials are investigating the scandal.  State lawmakers also are promising oversight hearings and plan to seek an independent audit of the department.  The state Finance Department also is reviewing all the state’s 560 special funds to make sure the actual fund balances match what has been reported to the administration and the state controller.

“State officials said Friday that the department had maintained the unreported money in its accounts for at least 12 years, including the entire time Coleman was director.  She served under three governors but said in her resignation that she was ‘personally appalled’ to learn of the hidden money.”

Right.  Got that.  But hang on, folks.  Our favorite Mendocino Muckraker torments us with yet another one of his irksome pearls here:

NOW IT’S $37 BILLION?  As California State government tries to explain how State Parks misplaced millions, we now learn that the State has no way of accounting for $37 billion in “special funds” squirreled away in some 500 accounts, relying, they say, on an “honor system” to keep track of the money.

No one checks to see that the money reported as being in these accounts actually matches the money on hand.  Only last week it was revealed that State Parks had sequestered $54 million in two special-fund accounts by not reporting them over the last 12 years.

 The Governor’s take on all this hoopla?  Last week he downplayed the scandal, saying it was the first time he’s seen the government get in trouble “for saving money.”

“When somebody comes and says, ‘Hey, guess what, we have some money over here,’ that’s better than saying, ‘Whoops, we don’t have the money,’ Governor Brown said.  “More money is better than less money,” the Governor quipped at a news conference.

Right.  And please let us know when pigs can fly through the smoke and mirrors.

* * * * * * * *
Red ink and red herrings and billion-dollar projects.  We don’t know whether we’re coming or going in terms of revenue.  Money’s flying out the door.  Can it possibly get any worse—or better—for the Golden State?

If we didn’t have California as a case study of fiscal insanity, someone would have to invent it.