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California drowning in sea of red ink: $127.2 billion deficit

By Catholic Online (NEWS CONSORTIUM)
April 2nd, 2013
Catholic Online (www.catholic.org)

According to State Auditor Elaine Howle and the Bureau of State Audits, if the state of California were a business, it would be a candidate for insolvency with a negative net worth of $127.2 billion. This disastrous economic picture is courtesy of an annual financial report.

LOS ANGELES, CA (Catholic Online) - Covering the fiscal year ending June 30, 2012, the report says that the state's negative status, which include all of its assets minus all of its liabilities increased that year, largely because it spent more than it received.

During the 2011-12 fiscal years, the state's general fund spent $1.7 billion more than it received in revenues and wound up with an accumulated deficit of just under $23 billion from several years of red ink. Governor Jerry Brown has referred to that and other budget gaps, mostly money owed to schools, as a "wall of debt" totaling more than $30 billion.

Voters passed an increase in sales and income taxes last November. Brown says the measure will balance the state's operating budget and allow the debt wall to be gradually dismantled.

About half of the $127.2 billion of dent came from the state's issuing general obligation bonds and then giving the money to local governments and school districts for public works projects. The auditor also pointed out that the assets built with the bonds remain on local balance sheets while the bonded debt accrues to the state.

The remainder, however, is all on the state's ticket. "Expenses that exceeded revenues and increased long-term obligations resulted in an 81.4 percent decrease in the total net assets for governmental and business-type activities from the 20-10-11 fiscal year," according to the report.

The report listed the state's long-term obligations at $167.9 billion, nearly half of which ($79.9 billion) were in general obligation bonds, with another $30.8 billion in revenue bonds, many of which were issued to build state prisons, whose "revenue" is lease payments from the state general fund.

This list didn't include the much-disputed unfunded liabilities for state employees' future pensions, nor the $60-plus billion in unfunded liabilities for retiree health care.

The Governmental Accounting Standards Board and Moody's, a major bond credit rating house, have been pushing states and localities to include unfunded retiree obligations in their balance sheets and were they to be added to California's, it could push its negative net worth down by several hundred billion dollars.

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