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Opinion: Columnists

Conn Carroll: The California spending rush

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Part two of a five-part series. To see part 1, click here. To see the entire series, including video and graphics, click here.

California's budget is balanced ... or at least that is what Gov. Jerry Brown wants you to believe, now that he "temporarily" hiked taxes on all Californians by $6.8 billion last year.

This past November, after voters approved Brown's income and sales tax hike through a referendum, the state's Legislative Analyst's Office projected that California would still end fiscal year 2014 with a $1.9 billion deficit. In January, just two months later, Brown claimed in his State of the State address not only that "the budget is balanced," but that the Golden State was on track to end the fiscal year with a billion-dollar surplus.

So what exactly happened in the span of two months that added $2.9 billion to California's bottom line? Did the economy suddenly turn around? Was spending cut? Not at all. What happened is that Brown simply made up new numbers.

Brown's budget not only assumes $1.1 billion in higher income and sales tax revenues than the November projections, but it also takes advantage of an additional $1 billion in revenues that will supposedly be created by the state's new cap-and-trade program and the elimination of certain development tax breaks.

CALIFORNIA IN CRISIS
Monday: What happened to the Golden State?
Today: The California spending rush
Coming tomorrow: Big Ed's big fail: How teachers union's are destroying California's schools
Thursday: How the environmental lobby destroyed California's infrastructure
Friday: Golden Geezers: Thanks to open borders, a generous welfare state, high taxes, land use regulations, failed education system, California is bleeding middle class families
Read the entire series at this link

But Brown was hardly in a position to make such assumptions. Before his speech, the first round of cap-and-trade auctions had already taken place, producing only 14 percent of expected revenue. In addition, California's state controller had already released numbers in December showing that actual tax collections were 10.8 percent below projection.

Will any of Brown's magic new revenue actually materialize in state coffers? History suggests it won't. A recent California Common Sense study showed that, since the recession began, governors' budget projections have overestimated revenue by an average of 5.5 percent. Apply that average to Brown's 2013 projections, and California's budget would suddenly go from $1 billion in the black to $3.9 billion in the red.

And those are just the debts that Brown chooses to acknowledge.

California has been running almost yearly budget deficits since 2000. By last year, those shortfalls had accumulated into a $28 billion "wall of debt." Brown's new budget begins to dismantle that wall -- again, assuming his fantasy revenue projections come in as advertised. But even if they come true, California will still owe $4 billion to assorted creditors by the end of 2017.

And even those numbers ignore California's biggest fiscal liability: the billions in pension and health benefits promised to government retirees.

California is controlled by the Democratic Party, and the California Democratic Party is controlled by the state's government employee unions. You can't win a statewide election there without at least the tacit approval of those unions. And for decades, the cost of their friendship has been protection from spending cuts in lean times and generous retirement package increases in good times.

California actually has fewer state government employees per capita than the national average, but its employees are the best-paid in America. This often has a negative effect on government services. It is hard, for example, to hire enough cops to keep violent crime down in Oakland if the city can't afford the six-figure compensation packages of the existing officers.

The same is true of the state prison system, which was recently forced by the Supreme Court to release thousands of prison inmates due to an overcrowding problem. It's hard to build new prisons with so much money going toward generous pension packages for the corrections officers -- pensions calculated based on their top earning years at six-figure pay.

Throughout the 1990s and 2000s, government unions at the state level won huge increases in retirement benefits, including a lowered retirement age and more favorable benefit formulas. As a result, the state's two biggest retirement funds, the California State Teachers' Retirement System, or CalSTRS, and the California Public Employees' Retirement System, or CalPERS, are both underfunded by $64 billion and $52 billion respectively. According to a recent report, Brown would need to spend an additional $4.5 billion per year just to make CalSTRS solvent.

But Brown, and whatever Democrat the unions anoint next, will never acknowledge these mounting retiree debts until they absolutely have to. When that time comes, you won't want to be a business owner in California.

As recently as 1994, California's state government spent just $38 billion a year. Twenty years later, Brown has proposed a budget that spends almost three times that amount ($97 billion). Californians will soon discover there is nothing "temporary" about their rising tax bills.

Tomorrow: The decline of California's education system.

Conn Carroll (ccarroll@washingtonexaminer.com) is a senior editorial writer for The Washington Examiner. Follow him on Twitter at @conncarroll.

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