State Watch

Jerry Brown’s Magical Mystery Surplus

A fourth term looms—and huge indebtedness.

By 5.29.14

UPI
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With California’s primary election next Tuesday, Governor Jerry Brown is likely to capture close to 60 percent of the vote. According to the latest poll, his two closest Republican competitors, between them, will get 25 percent.

Why the high numbers? Unlike the unpredictable days of Governor Jerry the Younger (1975-83), Brown the Elder is quiet, predictable and exudes stability. These days, voters like predictability and stability.

He was so pleased when he announced recently that the state was running a surplus that he followed up by persuading Democratic legislative leaders to sit down with Republicans to work out a bipartisan “rainy day” plan to use part of this and future surpluses to reduce the state’s huge indebtedness.

That’s the good news. The bad news is that the surplus is an illusion. It is true that the state government brought in a gush of cash in April — 2.2 percent more than predicted. This reduced the state’s cash deficit from $16.7 billion to $10 billion. That is an accomplishment, but it’s not a surplus.

While at a glance it looks as if Governor Brown thinks cash in the bank is the way one determines one’s fiscal position, he is not that naive. In fact, he shrewdly took $1 billion in truck weight fees —intended to fix roads and streets — and diverted them to make it appear he has a budget surplus. Originally, the fees were in a separate fund, but in 2011, the legislature moved them into the general fund. Nevertheless, they are supposed to be used exclusively for road maintenance. Upshot: while Jerry Brown basks in a warm glow, the state’s road system deteriorates.

And, according to the state’s nonpartisan Legislative Analyst’s office, California still owes $340 billion (that’s billion) in debts. In addition, the state has underestimated its public employee pension fund liabilities by approximately $500 billion.

Despite the dark clouds in the fiscal picture, Brown sees his magical mystery surplus as evidence he will leave the state in the black when he retires at the beginning of 2019.

No wonder the governor expects to cruise to a second term in November (actually his fourth when you include his two youthful terms). The latest Public Policy Institute of California poll (May 9-15) shows the leading Republicans, Assemblyman Tim Donnelly and former U.S. Treasury official Neel Kashkari at 15 and 10 percent, respectively. Democrats hope Donnelly will be the Republican nominee. If he is, they will harp on his harsh position on immigration and various firebrand statements he has made about other issues.

Meanwhile, the other part of Brown’s legacy, a “high speed” train from Sacramento and San Francisco to Los Angeles and San Diego, is not quite dead, but seriously ill. The state has been trying to build the first section, 100 or so miles in the Central Valley between two small communities (hence the term “nowhere”).

Several months ago, Superior Court Judge Michael Kenny ruled that the state could not sell $8.6 billion in bonds to begin first-stage construction because the ballot proposition voters had passed earlier required the state to show actual sources of funds for the entire $68 billion project. Last week, state attorneys argued before a state court of appeals panel that the judge’s ruling was “premature” and asked that it be overturned. The appeals court has 90 days in which to issue a ruling. Calm, steady Jerry Brown must have his fingers crossed.

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About the Author
Peter Hannaford was closely associated with the late President Reagan for a number of years. He is a member of the board of the Committee on the Present Danger. His latest book is “Presidential Retreats.”