California Budget: Don’t Believe What You Read in the Headlines

Both the New York Times (click here ) and the Los Angeles Times (Chris Megerian, Brown Says State is in the Black, L.A. Times, Jan. 11, 2013, at p. A1) run headlines in today’s editions proclaiming that California’s budgetary woes are over, and according to Governor Brown we have turned the corner and are headed for a surplus. Sounds great. But don’t believe it.

While it’s true that Brown so announced, there is less to this story than the headlines might suggest. First, the income side. Brown’s revenue figures fail to mention that they are inflated on a one-time basis because of the sell-off of appreciated investments by wealthy folks who have been saving taxes by realizing their capital gains in 2012 as opposed to 2013, when their federal (and state) taxes will be higher. In contrast with Brown’s estimated revenues that are claimed to produce a $21.5 surplus, the nonpartisan Office of the Legislative Analyst states that we face a $1.9 billion deficit, not any kind of surplus. Second, there is the matter of expenditures which, according to the L.A. Times are going up by 5%.

Quoth the Los Angeles Times (on the front page, above the fold yet):

“Even with the state’s books technically balanced, California will have billions of dollars in debt from pensions and other benefits promised to public employees and from borrowing that has not been repaid. The governor’s plan deals with only a fraction of that.”

Follow up: Three days later, the Los Angeles Times ran the following headline and subheading on the front page, above the fold:

Debt a Cloud Over State.’ Brown’s budget has a plan to repay $28 billion owed, but some estimate the state’s obligations at hundreds of billions.” Evan Halper and Chris Megerian, L.A. Times, January 14, 2013, at p. A1

As we lawyers are wont to say: Res ipsa loquitur.

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