CPC Study Consolidates California's State and Local Government Spending

FOR IMMEDIATE RELEASE
Sacramento, California, January 14, 2013
Contact:  press@calpolicycenter.org

When Sacramento politicians are dancing in the end zone about their “balanced budget,” how much does that tell us about whether government spending has been brought under control? Not much, according to a new study by the California Policy Center. Using the most recent financial data available, the CPC study calculates that direct State government spending for FYE 6-30-2011 ($49 billion) is dwarfed by total spending for that same year by local governments and agencies ($316 billion).

According to Bill Fletcher, co-author of the study, “we can’t understand the state’s financial situation without looking at total spending. In addition, we need to look at balance sheet items, mainly total debts and unfunded liabilities. The cost of servicing these debts will increase substantially over time as today’s low interest rates return to normal and claim an increasing share of the state and local budgets. The first step in dealing with these financial challenges is to recognize their magnitude using realistic assumptions to accurately estimate their present and future costs”

The conclusion of this study, based not only on an extensive review of publicly available data but also on many interviews with financial professionals within state and local government agencies, is that (1) California’s total state and local government debt and annual spending is higher than is generally understood, (2) government financial statements are fragmented, frequently unaudited, and use obsolete financial accounting standards, (3) policymakers are not getting adequate information, and (4) the most serious financial problems are at the local level.

“Politicians can hide a lot of mistakes behind this disparity,” said Ed Ring, Executive Director of the CPPC and co-author of the study. “It is natural for the media and the public to be most interested in what is going on in Sacramento. But it is not uncommon for Sacramento to avoid a budget problem by sending the spending obligation to local governments with hidden costs that are not adequately paid for by revenues provided by the State.”

Recommendations include:

(1) All local government financial statements should be audited and submitted to the state controller under deadlines that permit consolidated data to be available to the public within 12 months after a fiscal year end.

(2) California’s state and local governments should proactively adopt new GASB standards that require recognition of unfunded pension and health care obligations as long-term debt.

(3) Either the California Controller’s office or the California Dept. of Finance should compile reports that consolidate and clearly communicate the total state and local government spending, deficits, and outstanding debt.

(4) The state legislature should mandate all state and local government organizations begin pre-funding all retirement commitments, including retirement health care.

(5) To better ensure that budgets aren’t unexpectedly consumed by dramatic and unexpected increases to annual funding obligations for retirement benefits, the state legislature should require more conservative investment return assumptions to be adopted, especially by the pension funds.

To read the entire study, click on “How Big Are California’s State and Local Governments Combined?

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The California Policy Center is a non-partisan public policy think tank that aspires to provide information that will elevate and enlighten the public dialogue on vital issues facing Californians, with the goal of helping to foster constructive progress towards more equitable and sustainable management of California’s public institutions. Learn more at www.CaliforniaPolicyCenter.org.