Jerry Brown

Gov. Jerry Brown’s new budget presented a plan to pay back nearly $28 billion owed, but various sources estimate the state’s debt at hundreds of billions.

By Evan Halper and Chris Megerian, Los Angeles Times
January 13, 2013, 5:01 p.m.

SACRAMENTO — Gov. Jerry Brown proclaimed last week that California, which now has enough cash to pay its day-to-day bills, can no longer be described by naysayers as a “failed state.”

But even though it appears to be free of the deficit that dogged the Capitol in recent years, the state is no model of financial health.

Sacramento is legally obligated to pay many billions of dollars withheld from schools, local governments and healthcare providers as lawmakers struggled repeatedly to balance the books. It owes Wall Street more per resident than almost every other state. And it has accumulated a crushing load of debt for retiree pensions and healthcare, now totaling more than taxpayers spend each year on all state programs combined.

The budget Brown proposed Thursday addresses only a small portion of the overall debt, which stems from the same types of bills that drove cities like Vallejo, Stockton and San Bernardino into bankruptcy. The state is likely to find its debt consuming an ever larger share of money meant for the basic needs of government.

“Every year we fail to acknowledge or fix these things, it just makes the cost bigger,” said Joe Nation, a former Democratic assemblyman who teaches public policy at Stanford University.

When he released his budget plan, Brown vowed to knock down the state’s “wall of debt.” He presented a timeline for repaying nearly $28 billion the state owes to government programs that it raided for cash or deprived of funds over the years, as well as some bonds sold to balance the budget.

Payments of $4.2 billion would be made in the budget year that begins in July. Subsequent payments, growing to as much as $7.3 billion a year, would continue into 2017.

At that point, Brown says, $4.3 billion in debt would remain, mostly for delayed payments to healthcare providers and money owed to municipalities and schools for implementing state mandates.

“By paying down the debt, we’ve put ourselves in a stronger position when things go bad, as they inevitably do,” Brown said.

But numerous reports by state agencies, think tanks and academics have shown the wall of debt to be many stories higher than $28 billion — hundreds of billions of dollars over the next few decades. Brown’s repayment plan does not significantly reduce the sizable debt to Wall Street or account for promises the state has made to its current and future retirees but is not setting enough money aside to cover.

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