Based on the calls we’ve received this morning, yesterday’s report on the state’s cash flow crisis released by the Legislative Analyst’s Office (LAO) has created some confusion. The LAO’s report does not mean that California now faces a budget shortfall on the high side of $20 billion. It does examine the state’s cash flow needs and offer some options for addressing them.
California, like many if not most other states, typically borrows money in the fall and pays it in back in the spring. This happens in both good years and bad and is called cash flow borrowing. The state’s routine need to engage in cash flow borrowing reflects the fact that many large bills – such as payments to schools made at the beginning of the school year – come due in the fall, while a significant fraction of the state’s revenues come in during the spring, when taxpayers file their personal income tax returns.
The state’s cash flow problems are newsworthy this year for two reasons. First, the state’s persistent budget shortfalls have increased the amount that the state needs to borrow. Second, the economic downturn and, in particular, problems in global credit markets mean that money is tight even for the most credit-worthy borrowers.
Yesterday’s report did not update the LAO’s estimate that the state would face an $8 billion shortfall even if the money measures on the May 19 ballot – Propositions 1C, 1D, and 1E – are approved by the voters. The failure of one or more of these measures – which appears likely if the Public Policy Institute of California’s new poll results are indication – could push that shortfall up to $13 billion to $14 billion. But that’s still significantly less than the short-term borrowing needs identified by the LAO.
–Jean Ross
California Budget Bites 