Gov. Jerry Brown Uses Surplus to Prevent Bankruptcies
Policy + Politics

Gov. Jerry Brown Uses Surplus to Prevent Bankruptcies

REUTERS/Mario Anzuoni

Amid a rash of municipal bankruptcies and mounting concerns about unfunded state pension benefits, Gov. Jerry Brown of California is charting a course of fiscal probity that could have broader implications for the rest of the country. 

With his state happily awash in billions of dollars of surplus funds, the 75-year-old Democratic chief executive -- once dubbed “Governor Moonbeam” for his quirky liberal and glamorous lifestyle -- unveiled a new state budget on Thursday that is freighted with measures for paying down the state’s  sizable debt and beefing up a rainy day fund.

Related: California in Overdrive on Health Care Enrollment

For years, Brown has promised to address what he calls the state’s “wall of debt.” Now, with the likelihood that he will seek and win a fourth term as governor this year, Brown is taking advantage of California’s extraordinarily healthy fiscal picture to make good on that pledge.

“Jerry Brown first made his national reputation for being young and glamorous,” said Jack Pitney, a professor of government at Claremont McKenna College in California. “Now he’s making a reputation for being old and wise.”

Brown’s proposed state budget calls for an 8.5 percent increase in general-fund spending to $106.8 billion, the largest in state history, to provide more for schools, welfare and health care for the poor.

But the overall $155 billion spending blueprint also allocates $11 billion for debt reduction – including $6 billion of deferred payments to schools and $4 billion to pay down economic recovery bonds that were issued by the administration of former Gov. Arnold Schwarzenegger.

Armed with charts to illustrate the volatile boom-and-bust cycles in the state’s revenues, Brown stressed his efforts to address a “mountain of long-term liabilities” of $354.5 billion, The New York Times reported.

Related: After Detroit, Who Will Cut City Pensions Next?

A substantial portion of California’s future debt will come from potentially crippling pension liabilities, including unfunded retirement benefits for state employees that are estimated at $218 billion.

A slew of municipal bankruptcies, including those in Detroit and the California towns of Stockton and San Bernardino, were powered in part by those cities inability to pay for pensions and health benefits for government retirees. Currently the California State Teachers Retirement System has a projected shortfall of $80 billion.

Nationwide, states emerged from the Great Recession with pensions underfunded to the tune of more than $4 trillion, according to State Budget Solutions, a non-partisan fiscal watchdog. Nine states—Hawaii, Alaska, Kansas, Rhode Island, New Hampshire, Louisiana, Connecticut, Kentucky and Illinois— had set aside less than 60 percent of what they will need to cover their obligations.

Meanwhile, 61 cities reported a gap of more than $217 billion between what they had promised their workers in pensions and retiree health care and what they had saved to pay that bill, according to a study by the Pew Charitable Trust.

Brown has decreed that the state of California will not go down that road.

“With a decade of intractable deficits behind us, California is poised to take advantage of the recovering economy and the tens of thousands of jobs now being created each month,” Brown said in a statement. “But given the vagaries of the business cycle, we must be ever vigilant in the commitment of public funds. Wisdom and prudence should be the order of the day.”

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