Senator Moorlach's Notes on Analyzing the Governor's 2017-18 Budget Proposal
1. California's Net Financial Position
California’s “net” unrestricted financial position is a $169 billion deficit ($4,375 per person) according to the most recent Comprehensive Annual Financial Report (CAFR).
This figure should be positive for healthy organizations. It is derived by tallying the state government’s assets (monetary funds, investments, buildings, roadways, bridges, parks, etc.) and subtracting its obligations. The last positive position California had was during Governor Pete Wilson’s final term where the state had $1.5 billion in unrestricted net assets.
California is now ranked the worst state, below Illinois, whose net position is a negative $143 billion, or $11,174 per person. Illinois’ finances are so bad, they’re telling lottery winners that they may have to delay their payments.
Deferred maintenance for the state’s roads and highways is some $59 billion.
2. Estimates of California Unfunded Pension Liabilities
CalPERS: $114.5 billion
CalSTRS: $76.2 billion
UC Pensions (UCR) : $12.1 billion
*NOTE: For the 2015/16 fiscal year, CalPERS planned for a 7.5% rate of return, but only managed to achieve a 0.6% rate of return. Seven percent of a $400 billion liability means a shortfall of $28 billion (some 20% of Governor Brown’s general fund budget.
3. Current Unfunded Retiree Medical Liability
California has the nation’s highest unfunded retiree medical liability at $74.1 to $80 billion.
4. California's Transportation Infrastructure
- California’s 57 cent/gallon gas taxes are the nation’s 4th highest . When cap and trade taxes are added, California has the nation’s second highest taxes behind Pennsylvania.
- California spends 3 times the national average on maintenance per mile of roadway, yet California’s roads rate among the nation’s worst in pavement condition and congestion.
- In the 6 years following the Great Recession, California’s gas tax revenue grew by $1.75 billion, while road spending remained stagnant (Board of Equalization Data).
5. California's Business & Economic Competitiveness
- California has the nation’s highest personal income taxes. California also has the highest corporate tax in the Western United States. According to the Tax Foundation’s 2016 Facts and Figures, California is ranked 48th overall.
- The governor raised the minimum wage last year to $15 per hour. His own estimates show that it will cost the budget $4 billion per year in additional personnel costs.
- For the 12th year in a row, California was named the worst state for business in a survey of 500 CEOs by Chief Executive Magazine.
6. Pension Crisis is the Elephant in the Room
- Late last year, CalPERS cut pension benefits for the first time (City of Loyalton).
- Expanding pension costs are being filled by hidden taxes and fees.
- Lackluster investment returns are forcing CalPERS to re-evaluate the validity of their assumptions and admit investments alone may not be enough to cover pension costs.
- While many of the other states have pension problems, California is at crisis level.
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State Senator John Moorlach is a nationally recognized budget, finance, and fiscal policy expert. Moorlach graduated from CA State University in Long Beach in 1977, passed the C.P.A. exam in 1978, and completed his studies for the Certified Financial Planner designation in 1987. He earned a Certificate in Public Finance from the University of Delaware, Division of Continuing Education in 1995, the Certificate of Achievement in Public Plan Policy (CAPPP) in Employee Pensions in 1999 and the Trustees Masters Program in 2003 through the International Foundation of Employee Benefit Plans, and the New Supervisors Training Institute in 2007 from CA State University in Sacramento in cooperation with their Center for California Studies.