California’s financial state deteriorates as officials slack on making financial data public
There are two ways California could use some truth in accounting. First, with the extraordinary level of waste, fraud and abuse in this state, it is indisputable we need more fiscal discipline and oversight. Second, and in furtherance of the first, Truth in Accounting (TIA) is a highly reputable think tank that analyzes government financial reports. Its conclusions about California are disturbing to say the least.
Last week, TIA released its fifteenth annual Financial State of the States report, which ranks all 50 states by financial health. For most states, the data in this report is sourced from the audited Annual Comprehensive Financial Reports for fiscal year 2023, representing the most recent information available.
Although almost all states have a balanced budget requirement, the misalignment between expenditures and revenue at the end of fiscal year cumulatively for all states was $811 billion. According to TIA, “this means that to balance the budget — as is required by law in 49 states — elected officials have pushed current costs onto future taxpayers — costs that will continue to increase as inflation rises.”
In other words, this is all about government debt.
If government debt is defined as legally binding financial commitments for future payment, this would include general obligation bonds, revenue bonds, other esoteric debt instruments (such as “certificates of participation), pension debt and other post-employment benefits (OPEBs).
There is variance among experts as to the total amount of government debt in California. In 2022, the California Policy Center calculated total state and local debt at over $1.6 trillion. TIA, on the other hand, focuses on just state debt which, by itself, is at least $260 billion.
Careful readers will note that the data from California is from 2022, not 2023. And that’s a big problem. According to TIA, as of August 31, 2024, California had not released its fiscal year 2023 annual financial report, making it the fifth year in a row California has been late submitting this critical information.
As TIA notes, “Delaying financial reporting for five consecutive years is, at best, negligent and could even be considered reckless. The Government Finance Officers Association standard for timeliness is 180 days after the fiscal year-end. Truth in Accounting believes governments should release their financial reports within 100 days of the fiscal year-end. Without the 2023 financial report, citizens and elected officials are missing crucial information needed to make informed decisions regarding budgets, future legislative actions, and tax collection.”
Nonetheless, based on the 2022 data, California received a “D” grade from Truth in Accounting because “the state had only set aside 82 cents for every dollar of promised pension benefits and five cents for every dollar of promised retiree health care benefits.”
It is highly doubtful that, when it comes, the 2023 data will be any cause for joy. California is experiencing both job losses in the tech sector and accelerated out-migration of productive citizens.
Even worse, the state legislature has placed three measures on the November ballot, all of which would, if passed, exacerbate California’s debt crisis. Propositions 2 and 4 are each $10 billion statewide bond proposals which ultimately must be repaid out of the state’s general fund. If interest costs are included, these represent more $35 billion in future costs.
Moreover, and an even greater threat to California taxpayers, Proposition 5 would lower the vote threshold that has existed for 145 years for local bonds repaid by property owners. Reducing that threshold from two-thirds to 55% will open the floodgates to higher property taxes and increases in local government debt to stratospheric levels.
Despite these clear danger signals, many in political leadership are oblivious to both the debt crisis and the abject lack of accountability. Want proof? This past week, Governor Newsom vetoed a bill passed unanimously by the Legislature to require the state to report the results of its homeless spending. An editorial in the Wall Street Journal, “Gavin Newsom’s Homeless Accountability Veto,” hits the nail on the head. “Sunshine may be the best political disinfectant, unless you live in California where there’s never accountability or transparency for government spending.”
The speculation in Sacramento is that Newsom is concerned about what these audits would reveal.
Please, let’s cue Jack Nicholson: “You can’t handle the truth.”
Jon Coupal is president of the Howard Jarvis Taxpayers Association.