California Republicans seek to redirect high-speed rail dollars

Saying California has betrayed the will of voters who approved a controversial high-speed rail project, Assembly Republicans on Thursday proposed giving those voters a redo.

"It's clear that the current high-speed rail project hardly resembles what the voters narrowly approved," said Assembly Republican Leader Connie Conway of Tulare.

Under the plan announced by a group of Republicans, voters would be able to decide whether to channel $8.5 billion in bond money, endorsed by voters via a 2008 ballot initiative, towards local transportation infrastucture projects.

The plan reflects both Republican ire over Gov. Jerry Brown's embattled project and the train's tenuous financial position. A Sacramento Superior Court judge in November ordered the Brown administration to tear up its funding plan, saying it had strayed from the terms of Proposition 1A, which authorized the bond issue back in 2008.

The Brown administration has since prevailed upon the California Supreme Court, and the high court ordered the case to be sent back to a lower court for an expedited review.

In addition to redirecting the high-speed rail money, the Republican package of four bills would dedicate up to $2.5 billion of a newfound state surplus to paying off transportation loans; ensure billions in fuel tax money flows annually into local infrastructure projects, per the terms of Proposition 42; and compel the state to repay $2.5 billion in gasoline tax revenue diverted elsewhere during lean budget years.


PHOTO: Assemblywoman Connie Conway, joined by fellow Republicans, unveils the caucus' transportation package in the State Capitol on February 6, 2014. The Sacramento Bee/Jeremy B. White.


via: http://blogs.sacbee.com/capitolalertlatest/2014/02/california-republicans-seek-to-redirect-high-speed-rail-dollars.html

California fiscal analyst projects large surpluses

California's budget is on track for multibillion dollar surpluses in the coming years, the Legislature's nonpartisan fiscal analyst said Wednesday in an upbeat assessment of the state's fiscal picture.

An improving economy and continuing revenue from voter-approved tax increases in 2012 have left state finances in strong shape, Legislative Analyst Mac Taylor wrote in his office's five-year fiscal outlook released this morning.

The state is projected to have a $5.6 billion reserve by June 2015. Taylor, though, offered a note of caution in the report, the second-straight rosy review of state finances after years of red-ink warnings.

"Despite the large surplus that we project over the forecast period, the state's continued fiscal recovery is dependent on a number of assumptions that may not come to pass," he wrote.

Taylor projected annual surpluses to grow more slowly after the 2016-17 budget year, as tax increases from Proposition 30, Gov. Jerry Brown's ballot initiative last year to raise taxes, phase out. The impact will be felt over several years, however, and Taylor told reporters "you don't have one really dramatic year in which revenues fall off."

The revenue forecast remains highly dependent on capital gains. Taylor said the market "is not out of line like it was in the dot com boom."

Brown has taken steps in recent weeks to temper spending expectations ahead of the release of his annual spending plan in January, and his administration continued to urge caution Wednesday.

"Recent history reminds us painfully of what happens when the state makes ongoing spending commitments based on what turn out to be one-time spikes in capital gains," Michael Cohen, Brown's director of finance, said in a prepared statement. "We're pleased that the analyst's report shares the governor's view that discipline remains the right course of action. The focus must continue to be on paying down the state's accumulated budgetary debt and maintaining a prudent reserve to ensure that we do not return to the days of $26 billion deficits."

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California Budget Surplus: Golden State Debates What To Do With Extra Money

SAN FRANCISCO -- The late rapper Notorious B.I.G. may have been have hailed from New York, but his immortal maxim, "mo' money, mo' problems" has surfaced in the Golden State.

Earlier this week, California Gov. Jerry Brown unveiled his revised budget plan for the fiscal year that begins in July. It reaffirmed something that many in government have been predicting for some months: the state may be headed for a multi-billion dollar budget surplus resulting from the rebounding economy and a tax hike approved by voters last November.

The notoriously cash-strapped state spending less than it takes in hasn't occurred in more than a decade. Unsurprisingly, a lot of people have a lot of different ideas about how that money should be used -- from restoring government programs slashed from years of budget cuts to paying down the massive collection of debt obligations that the Los Angeles Times called a $28 billion cloud hanging over the state's future.

Though much of the surplus could be automatically diverted into the state's public education system, that hasn't stopped some in Sacramento from drawing up their own wish lists for what to do with the additional revenue.

Assembly Speaker John Perez (D-Los Angeles) said last week that his spending priorities include putting more money toward child care for poor families and providing increased financial assistance to college-bound Californians. "It's about responsibility," Perez told the Associated Press. "It's not about walking away from our obligations."

Other suggestions proffered by Democrats have included increased spending for the state's low-income Medicaid welfare program MediCal, reversing some of the deep cuts that have devastated the state's court system and increasing funding to job training programs. Some of these ideas were incorporated into the spending portion of the budget Brown made public on Tuesday.

Because Democrats hold supermajorities in both houses of the state legislature, not to mention a recent legal shift allowing the passage of a budget with a simple majority, the California GOP has been almost entirely shut out of the process.

Staying true to his public image as a voice of fiscal restraint Brown urged, well, fiscal restraint.

"Everybody wants to see more spending -- that's what this place is, it's a big spending machine," said the governor at a press conference in Sacramento earlier this week. "But I'm the backstop."

"It's not time to break out the champagne," he added.

That doesn't mean the administration is content to just stick the surplus in the bank and be done with it.

"Brown wants to use lot of this money for his new school funding program, where more money would be targeted toward schools in impoverished areas and with large percentages of non-English speakers, but a lot of members of the legislature don't seem to keen on this," San Jose State political science professor Larry Gerston said. What may ultimately happen is a compromise, with the governor agreeing to kick in some money for legislators' favored programs in exchange for getting more funding for schools, he said.

However, Gerson told HuffPost he's unsure this surplus will materialize. "California has a long history of promising surpluses that never actually come to be because predicting government income in our state is notoriously difficult," he explained. "When 75 percent of our revenues come from from a single [income] tax that primarily falls on high earners, one bump in the economy and your projection could be off by billions of dollars."

Gerston said he doesn't see as politically likely using the money to pay down any of the state's long-term debt obligations with anything more than a token contribution, even though the release of the original surplus projection in January is what triggered Standard & Poor's to boost California's credit rating.

The California legislature has until June 15 to approve Brown's budget.

Via Huffington Post

Once facing fiscal doom, California enjoys surplus

By JUDY LIN

Associated Press

Published: Monday, May. 13, 2013 - 1:57 pm

Last Modified: Tuesday, May. 14, 2013 - 1:02 am

SACRAMENTO, Calif. -- California was a poster child for fiscal calamity during the Great Recession with budget deficits larger than the annual spending plans of many other states.

Its credit rating was the lowest of any state at one point and drawn-out budget fights forced state officials to hand out IOUs. Today, so much tax revenue is pouring in that lawmakers face a different problem: Too much money.

Gov. Jerry Brown is pledging to restore fiscal sanity to the state and wants to fortify funding for schools serving low-income students while paying down the state's short-term debt. He is expected to champion restraint Tuesday when he releases his updated spending plan for the fiscal year that starts July 1.

Yet, his fellow Democrats who control both houses of the Legislature have ideas of their own. They want to spend money restoring safety-net programs for children, women and the poor that were eliminated or severely cut during the recession.

Many Democratic lawmakers want to restore adult dental care for the poor and expand mental health care. Doctors, hospitals and other health providers want the state to end a 10 percent Medi-Cal reimbursement rate cut. And children's and health advocates are pushing to restore health care services, if not expanded to all Californians.

Brown said last week that California needs to pay down its debt, which "frees up money" to spend on education, health care and other neglected needs.

H.D. Palmer, the governor's finance spokesman, said the governor believe that is the best way for the state to repair its finances. Standard & Poor's upgraded California's credit rating from A- to A in January and Fitch Ratings gave the state a positive outlook in March.

Brown included the additional sales and income tax revenue approved by voters last fall in the $97.6 billion general fund budget he announced in January. Since then, personal income taxes, which are the state's largest source of revenue, have come in ahead of the administration's estimates by $4.5 billion.

Budget experts say education is expected to take the largest share of that extra money under the state's complex school funding formula.

Brown is taking advantage of the surplus to push for a new way to fund K-12 schools. His plan would channel additional money to schools with high levels of low-income and non-English speaking children.

But that has received pushback from an unlikely source - Democratic lawmakers.

Many of them represent more affluent areas that would not receive the additional money Brown wants to funnel to the poorer school districts. Democratic lawmakers in the state Senate are proposing an alternative that does not include extra money for school districts where more than half of students are low-income.

Senate President Pro Tem Darrell Steinberg, D-Sacramento, said he supports more money for children from low-income families but believes the money should follow the child - even if he or she lives in an affluent community.

"There's give-and-take here; we don't issue dictates," Brown said. "But the idea of putting money where the kids have the biggest challenge in the schools or districts that have the biggest challenge because of the concentration, that's the core idea."

Brown and state lawmakers also will have to work out changes to the state's Medicaid program to get ready for the Affordable Care Act, which takes full effect next year.

While the state has agreed to expand Medi-Cal to some 1.4 million low-income residents, Brown and Democratic lawmakers disagree on details of the enrollment and implementation process. Brown also is pushing to reduce local government support for indigent care, a move opposed by health advocates.

Republicans say the governor is not as fiscally restrained as he claims to be. Brown is championing the $68 billion high-speed rail system despite a decline in public support and questions over how the project will be financed.

Senate Minority Leader Bob Huff, R-Diamond Bar, said Democrats also have not done enough to address long-term obligations such as public pension underfunding.

Via Sacbee

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High-Yield in California Gives Governments Bonanza

California’s rebounding finances are drawing investors to the riskiest debt of the world’s ninth- largest economy, buoying prospects for a revival in bond sales by its blight-fighting organizations.

The successor to the San Francisco Redevelopment Agency sold $123 million of debt last week, a year after lawmakers abolished the issuers. The offer marked the first new bonds to back a redevelopment project since all of the more than 400 authorities were eliminated as part of steps to balance the state budget. The securities are unrated, placing them among the most default-prone local obligations.

With the state poised for its first surplus in almost a decade and muni yields close to 47-year lows, some investors are turning to riskier California bonds. U.S. high-yield local bonds have gained 1.3 percent this year, double the investment-grade return, Standard & Poor’s data show. Debt of former redevelopment agencies is also rallying, fueling demand for San Francisco’s sale and raising prospects other cities may follow.

“People are more comfortable that this type of debt is going to pay,” said Bill Black, Oakbrook Terrace, Illinois- based co-manager of the $7.3 billion Invesco High Yield Municipal Fund, which bought some of the issue. “There’s also a demand for high-yield debt, particularly in California.”

Boats Lifted

The most-populous state had its bond rating raised by S&P last week for the first time since 2006 as the revenue outlook improves for the home to companies such as Apple Inc. and Facebook Inc. The fourth-biggest crude oil producer among states has also seen home values rise more than the national average in the past year, according to Zillow Inc. data.

Under California’s redevelopment program, municipalities formed taxing authorities that issued bonds to improve blighted areas and repaid them with levies on property values enhanced by the projects. The local authorities had nearly $30 billion in debt as of June 30, 2010, the state controller said.

Governor Jerry Brown, a 74-year-old Democrat, and legislators eliminated the agencies effective Feb. 1, 2012, to divert about $1 billion to schools. Brown signed a bill last year clarifyingthat cities and counties taking on obligations of the former agencies could issue debt to fulfill contracts with developers.

Rail Yards

San Francisco’s agency had entered into a contract to redevelop rail yards, according to a staffreport to the oversight board of the successor agency. The project includes housing, a medical center, a police station, offices and biomedical laboratories. It represents $9 billion in new investment in the city, according to the report.

The issuer last week was the Successor Agency to the San Francisco City & County Redevelopment Agency. The tax-exempt securities included bonds maturing in August 2022 and priced to yield 3.54 percent, data compiled by Bloomberg show. The yield was about 1.9 percentage points higher than on AAA munis, Bloomberg Valuation data show.

The sale may open the door to other cities, Black said.

“From an investor’s perspective we feel that the sale was successful and should be conducive for more debt sales with issuers that are in a similar position,” he said in an e-mail.

Risk Judgement

Still, unrated bonds are riskier than most local borrowings. About 4 percent of such munis are in default, compared with 0.1 percent of rated bonds, said Matt Fabian, managing director of Municipal Market Advisors in Concord, Massachusetts. About 92 percent of munis are rated, he said.

For investors willing to take the risk, the extra yield is appealing given the rally in lower-rated local debt. Ten-year securities rated BBB, or two levels above junk, yield about one percentage point above top-rated munis, close to the smallest difference since 2008, data compiled by Bloomberg show.

Holders of securities issued by redevelopment agencies before their elimination are benefiting from a rally in California debt.

Federally taxable San Jose redevelopment bonds maturing in August 2035 traded this week at an average yield of about 5.95 percent, data compiled by Bloomberg show. That was about 2.9 percentage points more than similar-maturity Treasuries, according to BVAL analysis.

The difference is down from about 3.5 percentage points early last year. Moody’s Investors Service rates the bonds one level below investment grade.

Reimbursement Funds

Last week’s offer will reimburse the developer for public improvements such as streets and utilities. Unlike redevelopment bonds repaid through taxes on enhanced property values, the San Francisco debt is funded through three special districts that have been collecting taxes on property since 2002.

Such entities are common in California and levy taxes based on the size of parcels rather than assessed value, said Catherine Reilly, manager of the San Francisco project. The three San Francisco districts will collect taxes on properties until 2050 or the improvements are paid off, whichever comes first, Reilly said in a telephone interview.

Investors probably were reassured by the familiar repayment mechanism, Reilly said. At the same time, she said a limited number of cities and counties will be able to replicate San Francisco’s model. Under California’s tax-limiting Proposition 13, two-thirds of residents within the proposed area must vote to form such a district.

In trading yesterday, yields on benchmark munis due in 10 years were little changed at 1.83 percent after the biggest weekly jump since December, Bloomberg Valuation data show.

via Bloomberg

Jerry Brown Creates California Surplus Miracle, But Can It Last?

Something close to a civic miracle seems to have occurred—at least on the surface.

California has long been synonymous with budget deficits so deep that it looked like the Golden State would inevitably be our Greece—beautiful and bankrupt.

But Gov. Jerry Brown announced that his state has suddenly projected a surplus of $851 million. Two years ago, when Brown came back into office, the state had a $25.4 billion deficit, a Sisyphean problem Governor Arnold struggled with unsuccessfully all last decade.

This reversal of fortune raises a lot of questions. What caused California’s budget turnaround? Is it sustainable? And finally, could there be a national lesson here as Washington tries to confront deficits and debt?

The top-line takeaway is that a balanced deficit-reduction approach seems to have worked in the Golden State. When he entered office in 2011, Brown proposed billion-dollar-plus cuts in welfare and Medi-Cal, as well as $500 billion from the UC system.

All told, his initial proposed budget was almost $20 billion less than Governor Schwarzenegger’s 2008–09 budget, which clocked in at $103 billion. Democrats and unions howled, and Brown’s ultimate budget was less austere than originally advertised, but deep cuts were enacted.

Crucially, Brown also took on the unpopular task of raising taxes—winning a 2012 ballot fight sonorously known as Proposition 30 and 39—that raised sales taxes and closed business tax loopholes. Next year, the combined new revenues are expected to exceed $5.8 billion.

The final factor is an improving economy—always the decisive X factor in deficit-reduction efforts. California’s economy is improving slowly, but the shift from the pit of the Great Recession moved the numbers in the right direction.

The result of increased tax revenues and spending cuts is that—at least for now—a projected deficit has been turned into a surplus.

This is good news. But not everyone is happy. And the numbers do sidestep a deeper problem.

Remember, deficits and debt are different things. Projected year-to-year deficits are comparatively easy to close, especially on the back of an improving economy. But out-of-control debt is ultimately what drags you down.

The Los Angeles Times offered a front-page reality check, under the headline “Debt a Cloud Over State’s Future,” pointing out the inconvenient fact that California “has accumulated a crushing load of debt for retiree pensions and healthcare now totaling more than taxpayers spend each year on all state programs combined.” Ouch.

Brown’s budget does begin to pay down the debt, but the outstanding amount dwarfs the pay-down. Of course, that hasn’t stopped liberal activists from demanding more money be spent immediately on social services, under the banner of “investment.”

Moreover, there are real questions about whether the increased tax burden—especially on the wealthy—will end up eroding the state’s tax base in the near future.

“There’s some doubt that high income taxpayers won’t either move to Nevada—or some other low or no-income tax state—or find other ways, such as delaying realization of cap gains, to avoid hefty new surtaxes—especially since their federal taxes are also increasing,” emails the Sacramento Bee’s Dan Walters. “California’s marginal income tax rate (federal plus state) is now highest in U.S. at highest level, about 52 percent.”

But Walters acknowledges that Brown’s budget miracle is more or less legitimate, at least for now. “It’s mostly new revenue from sales and income tax hike approved by voters in November with a dash of economic recovery and a smidgen of creative bookkeeping such as slowing down some debt repayment and assuming renewal of a tax on health care providers to trigger some federal aid,” Walters’ continues. “But overall it’s mostly the new taxes.”

Other Golden State observers take an even more skeptical view. “There is a reason Gov. Brown is known as Governor Moonbeam,” says KABC’s center-right John Phillips. “Structural deficits are everywhere, the nonpartisan Legislative Analyst’s Office says there’s still a $1.9 billion budget deficit, and rich people can’t cross the state line fast enough—taking revenues down almost 11 percent since the passage of his Prop 30 tax hikes with them. On the plus side, hey, we’re not Detroit!”

The Rust Belt does have problems that make California’s cyclical deficits and deep legislative dysfunction seem comparatively easy to solve. But Jerry Brown deserves credit for pulling off at least short-term success in a state budget situation that had many experts calling impossible to solve. In the near term, the deficit turned surplus highlights the improving national economic environment.

It also provides a compelling object lesson for advocates of a “balanced approach” for reducing deficits, like President Obama & Co. Contrary to conservative talking points about how revenue is not a legitimate part of deficit-reduction solutions—instead, it’s all spending cuts all the time—California’s recent example shows that increased tax rates can help rapidly reduce deficits. Moreover, especially compared with much of Europe, the Obama administration’s decision not to simply pursue a path of deep austerity cuts seems to have been the wiser path, at least for now.

But conservatives could have the last laugh if the wealthiest Californians decide to flee the state for comparatively low-tax climes, like a sun-baked Gérard Depardieu.

Bottom line: This fight ain’t over. But at least for the moment, Jerry Brown’s balanced if painful plan to turn deep deficits into a modest surplus deserves study. It offers a rare glimpse of good news in the relentlessly bleak world of state budget. Whether it is sustainable remains to be seen.

via the Daily Beast

California's budget shows signs of a surplus, analyst says

SACRAMENTO, CALIF. -- The state's fiscal analyst said Wednesday that California's long-tattered budget is on the verge of producing surpluses, but he cautioned that Gov. Jerry Brown and lawmakers must first avoid a spending spree.

The improved outlook comes after voters approved two tax initiatives last week, and the California economy and housing market showed signs of perking up. State leaders have also cut programs in recent years.

It was the nonpartisan legislative analyst's most optimistic fiscal forecast since the dot-com boom 12 years ago. It shows a relatively small $1.9 billion deficit through June 2014 against a $97.7 billion general fund, followed by annual surpluses that grow beyond $9 billion in 2017-18.

"For the first time since about 2001, we actually show us being in the black," Legislative Analyst Mac Taylor said. "This is a dramatic turnaround."

Those numbers, however, rely on assumptions that few Capitol veterans expect to hold – namely that Democratic lawmakers will keep programs at current spending levels after years of forcing allies to accept cuts and no cost-of-living increases. It also assumes steady economic growth and no broad federal tax hikes or deep spending cuts.

Spending demands are already hitting Sacramento. University of California officials made clear Wednesday they want more money next year, warning that tuition hikes may occur otherwise. Social service advocates have clamored to restore programs such as dental care for low-income adults in Medi-Cal.

Brown said in a statement that he intends to "continue to exercise fiscal discipline and pay down debt." But Democratic lawmakers will have a two-thirds supermajority, gaining the ability to increase taxes and fees on their own as well as greater leverage in negotiations with the governor.

"It's difficult to imagine anyone on the short end of those types of budget cuts accepting them without a fight," said Dan Schnur, director of the Jesse Unruh Institute of Politics at the University of Southern California. "If you're a legislator who has a battalion of interest groups outside your door trying to drag you in one direction and the governor on the phone trying to convince you to hold firm, it's not a fun place to be."

In the immediate budget cycle, the state faces a $1.9 billion deficit through June 2014, according to the Legislative Analyst's Office. Just one year ago, it predicted a $13 billion gap over a comparable time period, and a $25 billion shortfall the year before that.

Voters last week approved Brown's tax initiative, Proposition 30, to increase income taxes on top earners and sales taxes by a quarter-cent on the dollar to generate $6 billion annually through 2018-19. They passed a separate initiative, Proposition 39, to permanently raise taxes on some corporations by $1 billion a year.

Despite those new taxes, the analyst's office believes the state faces a short-term deficit largely because it will not receive about $1.8 billion that Brown expected from eliminating redevelopment agencies. The analyst also says state leaders can't use $400 million in cap-and-trade revenues to plug the budget, and California faces higher than predicted wildfire costs.

The immediate deficit would have been higher had Brown's Department of Finance not discovered a surprising amount of additional money this month. Finance officials said they revised their accounting of past revenues – mostly income taxes – to reveal an additional $1.4 billion available for the budget.

That money was not reported to the Legislative Analyst's Office until the afternoon of June 6 – the same day voters approved Proposition 30. Finance spokesman H.D. Palmer said his department found the money as part of an annual review that assigns revenues to past budget years.

The legislative analyst's fiscal forecast serves as the unofficial kickoff to the budget season. Brown will set things in motion when he releases his 2013-14 budget in January.

Taylor hinted Wednesday the governor may believe he faces no deficit at all if he uses a higher estimate of redevelopment funds and cap-and-trade revenues.

As state revenues increase, K-12 schools and community colleges will receive more money under a funding formula in the state constitution. Schools may use the money to hire additional teachers, increase salaries or restore subject matter that had been cut.

But Taylor said the state's finances are not yet strong enough to enable similar expansion in public programs such as Medi-Cal, universities and in-home care – all of which lack the mandated spending increases that K-14 schools have.

"I think it's a little bit of a tale of two budgets there," Taylor said.

As lawmakers and Brown enjoy an influx in revenues and possibly surpluses in years to come, the analyst's office offered advice that mirrored the wisdom commonly dispensed to consumers by personal finance experts. It suggested that state leaders build an emergency reserve, pay off debt, devote more cash to retirement costs and be very selective about buying back programs.

Senate President Pro Tem Darrell Steinberg, D–Sacramento, told The Bee's editorial board Wednesday that he wants to do all of that, though he didn't commit to how he would divvy up the budget.

"Obviously we're not going to be able to reinvest dramatically in year one and year two or in year three," Steinberg said. "Obviously we're not going to be able to make up for all the losses that have occurred in education, higher education, public safety and health and human services in the short run."

But Steinberg added that he wants to pursue a "medium- to long-term investment plan" that would devote funds to a rainy-day fund, program restorations and paying off debt.

The legislative analyst's forecast relies on a steady economic recovery in California. Its projections show the state unemployment rate dropping from 10.6 percent in 2012 to 6.7 percent in 2017. It also assumes that personal income will grow by between 4.7 percent and 5.8 percent annually.

Taylor warned that the state and national economy could suffer if federal leaders do not avert the so-called fiscal cliff in which taxes increase and spending cuts would occur. His projections assume that President Barack Obama and Congress will reach a deal that avoids the most severe impacts.

Posted on Thu, Nov. 15, 2012 06:20 AM

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