California's Phony Budget Surplus
By David Henderson
My personal finances are doing great. I have a “surplus.” I saved $1,000 last month after paying all my expenses. Well, not all my expenses. I didn’t pay my $1,500 monthly mortgage. But, hey, don’t be picky.
The above is something I made up. Actually, my personal finances are great and this is after never having missed a mortgage payment in 27 years. (OK, I was a few days late once but the stiff 5% penalty on that payment caused me never to be late again.)
But here’s what’s not made up:
And California, which faced a $26 billion deficit two years ago, expects a surplus of between $1.2 billion and $4.4 billion this year, thanks to a combination of tax increases, budget cuts and an improving economy. But it could be erased if the state were to adequately finance its teachers’ pension fund, which says it will need an additional $4.5 billion a year, much of it from the state, to pay the benefits it promised.
In other words, California’s state government has committed to a pension fund for teachers and has ginned up a surplus by underpaying into that fund. And notice the number: $4.5 billion. That puts it at the top end of the optimistic estimate of the surplus. And, according to this New York Times article, other state governments are playing similar games.
A couple of weeks ago, when California’s state budget was released, a local TV station, KION, which has interviewed me on national economic issues, called me to ask if they could interview me on the state budget. I told them that I would need to spend at least 40 minutes to do my homework and have anything interesting and important to say and that I didn’t have 40 minutes that day. In light of the above, I’m glad I declined.