STANDARD & POORS UNDERMINES THE ARGUMENT THAT CALIFORNIA BUDGET SPENDING IS UP

By Joe Mathews | from Fox+Hounds | http://bit.ly/1RzoQCX

Connecting California Columnist and Editor, Zócalo Public Square, Fellow at the Center for Social Cohesion at Arizona State University and co-author of California Crackup: How Reform Broke the Golden State and How We Can Fix It (UC Press, 2010)

Friday, February 12th, 2016  ::  Facing Democratic demands for more spending, the Brown administration has been at pains to show that it’s been spending more. The governor’s State of the State speech included lists showing boosts of spending, emphasizing education spending and Obamacare.

An assessment of the budget from Standard & Poors (follows), the credit rating agency, undercuts the idea that spending is up. S&P emphasizes how the budget spending base remains low.

S&P likes this (it wants state credits to get paid back, of course). And so it praises the state for its frugality. Increases in tax receipts have “shrewdly” gone to one-time purposes, like deferred school aid payments that don’t add to the funding base. And “beyond education,” S&P says, “much of the growth in general fund spending since 2011 has similarly been limited to one-time outlays for debt repayment and to capitalize the state’s budget reserves.”

●●smf: Of course credit-raters like S&P got it so wrong in rating collateralized debt obligations and guaranteeing the credit default swaps sold by the securities markets that led to the Big Recession (the reason for California's "shrewd" deferred school aid payments)  ...culminating with Department of Justice investigations and settlements. Standard & Poor’s was hit with a $1.375 billion settlement for defrauding investors in the lead up to the financial crisis ...but didn’t admit to doing anything wrong.  Read or see The Big Short.

S&P also embraces the constitutional budget shackles that have prevented the state from investing more—“constitutional requirements… crowded out room in the budget for all but a few new spending commitments.”
This, S&P added, “had the effect of holding the state’s expenditure base to a lower trajectory than earlier fiscal projections.”

This explodes the idea that the budget has been fixed.

As S&P notes, the budget is still done by formula, not controlled by the governor. “Constitutional funding formulas dictate minimum spending on kindergarten through community college education (Proposition 98), debt repayment, and deposits into the state budget reserve.

In fact, there are so many controls that S&P notes that there’s just $7 billion in discretionary budget resources for fiscal 2017—that’s not much discretion in a budget of more than $100 billion.

California still has a spare budget and a broken budget process.

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