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Jerry Brown’s Upside Revenue Projections Irresponsible

PERSPECTIVE - Governor Brown’s projected general fund budget for 2012-13 will grow by almost $12 billion, [link] reportedly reflecting a rate of growth never before realized in the state’s history.

It is perfectly rational and necessary to project revenues, but it is irresponsible to forecast only the upside.

The recent news that revenue will be about $6 billion higher for the current year, while welcome, must be tempered by the impact capital gains had on the size of the increase. [link]

The market had an exceptional year bouncing off the bottom, but gravity will eventually take hold and pull it back down to some degree -  maybe not next year, but eventually. Corrections and recessions will always be a part of our future, so planning for them is an absolute necessity.

Once again, it appears as if elected officials are not looking beyond a year.

Before earmarking anticipated revenue increases to restore programs, it would be wise to bank most of the increase for a couple of years – assuming the revenue continues to grow beyond next year.

There are limits to how much can be reserved.  Prop 98 requires the state to spend 40% of its revenue on education, probably one of the most ill-conceived propositions ever approved by the voters.

No one will argue that education should receive a large chunk of the budget, but mandating a specific share free of performance and cost control objectives is like loaning money to your ne’re-do-well cousin for his bait shop on Lake Lackalucka.

There will be other bubbles similar to what we experienced from the dot.com and real estate booms.  

For certain, we are nowhere near out of the woods on real estate.  [link]

The sad part is most people will allow the state to continue down the narrow path it has followed for decades.

(Paul Hatfield is a CPA and serves as Treasurer for the Neighborhood Council Valley Village.  He blogs at Village to Village and can be reached at: phinnoho@aol.com ) –cw

Vol 9 Issue 43
Pub: May 31, 2011