With state finances improving, it’s time to pay down debts while there’s money available.
In January, Gov. Jerry Brown will present his budget proposal for fiscal year 2016-17. In anticipation, Legislative Analyst Mac Taylor last month reported that the state is better prepared for an economic downturn than at any point in decades.
Taylor forecasts that, if the economy remains strong, the state’s rainy day fund will grow from $5.6 billion this year to $11.2 billion in 2019-20. The governor championed the fund and convinced voters in 2014 to require it.
In addition, discretionary reserves that lawmakers can tap will increase from $2 billion this year to $17 billion in 2019-20. That strong forecast takes into account the phaseout, starting next year, of the temporary sales and income tax hikes voters approved in 2012.
In other words, the fiscal crisis that precipitated Brown’s plea for tax increases is over. The state faces several new crises, however — including doctors refusing to treat newly-insured Medicaid patients because the state’s reimbursement rate is so low. But the improved state outlook should make it easier to deal with that.
In addition, while the financial crisis has passed, a huge debt hangover remains. This is no time to add new programs that will make it harder to balance the budget during the inevitable next downturn.
As Brown’s finance director, Michael Cohen, warned, “we must continue to pursue fiscal discipline, pay down liabilities and build up our Rainy Day Fund during these fleeting good times.”
About those liabilities: The state owes more than $210 billion for unfunded pension and retiree health care obligations for state workers, school teachers and University of California employees.
That’s how much the investment funds are currently short. Over the past four years, the governor developed plans to address the imbalances. But the repayments are stretched out, in most cases, for three decades.
That’s too long and the governor knows it. Last month, he sharply criticized the California Public Employees Retirement System for using what he correctly termed “irresponsible” investment assumptions that tamp down payments.
If CalPERS had acted responsibly, the state would have had to make higher minimum contributions. However, CalPERS’ failure doesn’t preclude the governor and Legislature from doing the smart thing by paying more now. Just like a credit card bill, larger payments now, when money is available, will reduce future payments when times are tight.
The same principle applies to all the retirement debts. The governor should insist that the state more aggressively pay them down.
Brown restored the state’s fiscal stability. Now he needs to protect it.
Bay Area News Group
