Dan Walters

Dan Walters
June 11, 2015

  • Jerry Brown has reduced ‘wall of debt’
  • He excluded $10 billion owed to feds
  • Ignoring it could create big problem

Three years ago, Gov. Jerry Brown added “wall of debt” to the political lexicon.

As he defined it, the wall was $33 billion in debt that the state had accumulated over the previous half-decade to cover state budget deficits and still had not repaid.

The biggest chunk, $13.8 billion, was owed to schools and community colleges – underpayments and deferrals of constitutionally mandated state aid.

Other debts included money borrowed via state budget bonds, loans from state special funds, and deferred payments to local governments.

To his credit, Brown has relentlessly hammered away at the wall, particularly the school debts, with much help from a temporary tax increase and an improving economy. His 2015-16 budget would not erase the remaining debts, but come close.

It would, for instance, repay $300 million that had been borrowed from the Motor Vehicle Fund – and not a moment too soon, because the MVF is flirting with red ink, primarily due to rising expenditures for California Highway Patrol salary increases.

There was, however, a curious omission from the “wall of debt” three years ago – $10 billion in loans from the federal government to prop up the state’s Unemployment Insurance Fund that, like the budget as a whole, was battered by the Great Recession.

As unemployment climbed during the recession, the UIF was hit hard, and its relatively small reserve was quickly exhausted, making it insolvent. The reserve was scant largely because in 2001, the Legislature and then-Gov. Gray Davis nearly doubled benefits, financing them from what was then a $6.5 billion UIF reserve rather than raising taxes on employers.

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