California: A Basket Case
The California state budget has been bleeding red ink for years but this most recent report released by the state controller highlights the alarming fact that there is no fix for the Golden State's finances; taxes can't be raised high enough nor can the budget be slashed deeply enough to fix their massive deficit:
State Controller John Chiang today released his monthly report covering California’s cash balance, receipts and disbursements in November 2012, showing total revenues were $806.8 million below (-10.8 percent) projections contained in the 2012-13 State budget.
“November’s disappointing revenues stand in stark contrast to recent news that California is leading the nation in job growth, has significantly improved its cash liquidity to pay bills, and even long-distressed home values are starting to inch upward,” said Chiang. “This serves as a sobering reminder that, while the economy is expanding, it is doing so at a slow and uneven pace that will require the State to exercise care and discipline in how its fiscal affairs are managed in the coming year.”
Personal income taxes in the month of November were down $842.5 million (-19.0 percent). Some of the tax revenue associated with Facebook shares came in during the month of October, while budget planners had projected receiving those funds in November.
Corporate taxes were down for the month, coming in $187.8 million below (-213.4 percent) projections. A portion of this drop was due to higher than expected corporate tax refunds going out in the month of November. Totals for sales taxes were up $99 million (3.8 percent).
The State ended the last fiscal year with a cash deficit of $9.6 billion. As of November 30, that cash deficit totaled $24.9 billion and is being covered with $14.9 billion of internal borrowing (temporary loans from special funds), and $10 billion of external borrowing.
Could it be that the state is spending too much? A revelation:
The difference between actual and estimated numbers is larger on the spending side. For the first five months of the fiscal year spanning July through November, actu-al disbursements exceeded projections by $2.2 billion, or 4.9%. Education and health care accounted for the majority of the difference. Spending on general state operations was less than expected.
The shortfall of revenues and excess of spending mean that the overall variance from estimates has equaled about $2.7 billion in Fiscal Year 2012-13.
They're $25 billion in debt and still spending money like the world really is going to end December 21. Year to date, they are spending 5% more than projected and taking in 2.6% less than expected. How long can they continue that without the whole rotten edifice collapsing?
Voters recently approved a massive tax increase on the wealthy and it will be interesting to see if revenue projections from that increase match actual receipts. The state thinks it will get $6 billion a year from the tax, raising the rate for those making over $250,000 to 12.5% If not, California will go even deeper in the red and eventually be forced to seek some sort of bail out from Washington.