Wednesday, July 8, 2009

A billion here, a billion there - the $50 billion California deficit

"A billion here, a billion there, and pretty soon you're talking real money."

The above sardonic quote attributed to the late Minority Leader of the U.S. Senate Everett Dirksen could be thrown at the press and politicians here in California.

Everyone keeps repeating the number "$26.3 billion and growing" as the real deficit projection the State government is incurring. That may be the number for the General Fund. But since January the State has been borrowing to pay unemployment benefits. The May projection by the Employment Development Department was that the State of California Unemployment Insurance Fund will have a deficit of $18 billion.

Not to worry. The federal government automatically loans the State the money needed to pay benefits. According to EDD:
As part of the American Recovery and Reinvestment Act (ARRA), interest owed on borrowed funds will be waived for 2009 and 2010. Interest will begin accruing on January 1, 2011 and repayment to the Department of Labor would need to occur no later than September 30, 2011.
Hmmmm. That repayment could be a bit of a problem. You see, the $18 billion deficit was based on April unemployment claim projections. Unfortunately, they didn't have the May information which apparently was a bit of a shock when the unemployment rate jumped to the highest in the history of modern record keeping. And, of course, they didn't have the June information. We don't have the June information for California yet, but the national unemployment rate jumped higher than the economic prognosticators predicted. Presumably, the same will be true for California.

So let's revise the number. It is reasonable to assume that the benefits are going to run about $3 billion higher then the May estimate. It is reasonable to assume that the "employer contributions", a euphemism for what is a payroll tax, are going to run about $1 billion less than the May estimate. In other words, it is reasonable to assume that by the end of 2010 California is going to owe the federal government $22 billion for unemployment benefits.

So, from the taxpayers perspective, we have to find a way to cope with...oh, let's just go with the "a billion here, a billion there" approach...a $50 billion and growing deficit. That's a nice round number Senator Dirkson would appreciate.

Of course, this $50 billion number assumes the economy will somehow not be bad in 2011. And it assumes that the General Fund deficit number includes an accurate estimate of the likely reduction in property tax revenues.

Then there's the pension fund losses since 2007....

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