State Controller John Chiang's monthly report on the state's finances shows that in January, receipts rose above the governor's 2010-11 budget estimates by $1.28 billion, or 18.6 percent.
"The positive receipts are welcome news, but the state cannot be lulled into a false sense of security," Mr. Chiang said. "Our cash position falls below safe levels this spring, and goes into the red this summer. Our chronic budget shortfalls require credible and sustainable fixes in order to protect taxpayers, local governments, and state-funded programs."
Year-to-date receipts for the 2009-10 fiscal year are ahead of budget estimates by $459 million, or 1 percent, but state payments also went out faster than expected. Disbursements through January 31 were $586 million ahead of projections.
On January 31, the state's special funds, which the state can borrow from to bolster its general fund cash position, were $1.6 billion higher than projected. But the controller said historical patterns show that $627 million of those funds may not be available for future cash-flow borrowing. That leaves the state's true cash position $855 million ahead of projected levels, as of January 31.
The state started the fiscal year with an $11.9 billion cash deficit in the general fund, which grew to $24.1 billion by January 31. Those deficits are being covered with a combination of $15.3 billion of internal borrowing from special funds and $8.8 billion in short-term revenue anticipation notes. (Source: State Controller's Office news release, February 10.)
In other budget-related news:
Senate Democrats' Tax Package Could Pass
Committee This Week. Still
shrouded in mystery and unseen by the public, a tax package proposed by Senate
Democrats could pass out of the Senate Appropriations Committee this week,
according to Capitol sources.
Rumors about the
content of the tax package generally center on a gas tax swap, independent
contractor withholding, financial institution record match, professional
license revocations (for unpaid taxes), expansion of sales tax nexus, and an
updated conformity bill. It is unclear why the conformity bill, which includes
the 20 percent erroneous refund penalty that was vetoed last year, is a part of
the package, as it is scored as a slight revenue loss, and therefore does not
help balance the budget.
Earlier this week, a
spokesman for Governor Arnold Schwarzenegger said the governor would veto
independent contractor withholding, as he views it as a new tax. It is also
questionable whether the state could even administer independent contractor
withholding with respect to the contractors it hires (see related story on page
9 regarding a 1099 debacle by the state).
The Senate
Appropriations Committee on Wednesday voted to approve nearly $2.5 billion in
cuts, including an $811 million reduction in prison health care and $61 million
for regional development centers. The committee also approved a 5 percent
reduction in all department personnel budgets. (Source: Capitol sources, The Sacramento Bee and San Francisco Chronicle, February 11.)
State Faces $51.8 Billion Bill for Government Retirees' Health and Dental Benefits. State Controller John Chiang reported February 9 that California faces a $51.8 billion bill to pay for health and dental benefits for state retirees.
"I urge lawmakers to reduce the impact on future generations by putting additional dollars into the annual payments so that we can invest those funds, grow that money and tackle our obligation in a responsible manner," the controller said.
The unfunded obligation as of June 30, 2009, grew $3.6 billion from the $48.2 billion obligation identified in the prior year. However, Mr. Chiang said the 2008 figure was lower than expected primarily because the California Public Employees' Retirement System used surplus funds to reduce that year's increase in health care premium costs for the CalPERS self-funded plan.
Unlike state
pensions, which are covered by pre-funding and investment returns, California
pays for retiree health benefits on a "pay-as-you-go" basis as the
costs come due each year.
The controller's actuarial report focused on a "closed group" population, as required by a Governmental Accounting Standards Board reporting regulation. A "closed group" analysis reflects only the present value of retiree health benefits for current state employees and retirees. It does not include benefits associated with future state employees hired after the valuation date. (Source: State Controller's Office news release, February 9.)
Australian State Finds Unintended
Consequences of Fire Insurance Tax. One of the proposals under consideration to generate revenue, as part
of a solution to eliminate the budget deficit, is a fire insurance surcharge (ABX8 36, Ma),
which nearly everybody concludes is a tax.
The state of
Victoria in Australia (the state includes Melbourne and surrounding areas) has imposed
a fire insurance tax and is discovering unintended consequences.
Noel Pietersen, chief executive of the Insurance Brokers
Association of Australia, said a number of people cancelled their fire
insurance after the tax went up. He said the tax is "unfair," as
people who don't pay the tax get the same fire service as those who do. (Cal-Tax: It is this feature of the
proposed California fire insurance surcharge that clearly makes it a tax.)
Dr. Kevin Tolhurst, senior lecturer in fire ecology at the University
of Melbourne, said about 30 percent of property owners don't have fire
insurance – for various reasons, including added cost for the same service
cited above, and because of the feeling that the government will bail out the
victims of a fire disaster.
On a very hot (115
degrees in Melbourne) February 7, 2009, the worst fire disaster to hit
Australia occurred, as a series of brush fires were ignited in the rural
regions north of Melbourne. The "Black Saturday" fire killed 173
people and destroyed 3,500 structures. The unintended consequence of the fire
insurance tax was that many people were not insured when this disaster hit.
(Cal-Tax: To what extent will
Californians drop their fire insurance if the proposed tax is imposed? One
would presume that the demand is not totally inelastic.) (Source: BBC World Service: Business Daily,
February 4.)
Cal-TaxReports, February 16, 2010
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