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June 2009
California by the Numbers - What Exactly Happened this Year?

The situation in California is dire – we are not facing a budget problem. We are out of CASH. Those who understand finance know the difference. A Budget is a financial plan based on future estimates. Cash Flow is the amount of cash the state has on hand to pay obligations.  The Controller has been shouting from the rooftop, has been ignored, but numbers don't lie. So, I have prepared a simple ''ducky-bunny'' analysis for you, because I know when you look at the numbers, the problem will be crystal clear to you, even if some running your government don't understand.  


Looking Back - Cash Flow Analysis:

The State's fiscal year begins in July.  If we compare year-to-year cash receipts for the 10 months ended July 1, 2008 through April 30, 2009, actual Cash Tax Receipts are down by 15% as noted below:  

2008 - 10 mo. Actual: $79,072,175,000

2009 - 10 mo. Actual: $67,339,714,000

Difference -$11,732,461,000 or 15% decrease from 2008

However, cash is actually down by 17% from what the Legislature had projected last summer when the 2008-09 Budget was prepared:

2008-09 Budget Act projected: $80,942,672,000

The difference is $13,602,958,000 or 17% less than projected for 2008-09. However, our expenses remained at the projected levels.  So, we operated in the negative this year as follows: 

General Fund 10 mo. Actual 2009 Tax Receipts: $67,339,714,000

Money Transferred from Emergency Funds: $2,384,047,000

Minus Total Cash Expenditures: ($88,765,572,000)                              

Shortfall: ($19,041,811,000) 


How did we fill the gap? – We Borrowed

We borrowed internally from other funds: $15 Billion

We borrowed externally (October 2008 bond sale; $7B offering): $5.5 Billion


Looking Forward – What Do We Have Left?

As of April we had $4.7 B remaining to borrow internally from other funds. To keep it simple, let's use an average of the 10 month YTD total expenses and revenues to complete the 2 months remaining for this year ending June 30, 2009:

  • Assume cash receipts of $6.7 B per month or $13.4 B by 6/30/09 FYE
  • Assume bills to pay in the amount of roughly $8.8 B per month or $17.2 B by 6/30/09 FYE  

Cash Receipts: $13.4 B

Funds Avail to Borrow: $4.7 B

Total Potential Cash on hand: $18.2 B

Less:  Obligations (Bills) to Pay: $17.2 B

Cash Remaining at June 30, 2009 FYE $1.0 B

My estimates are based on annualizing revenues and expenses using the 10 months ended 4-30-09.  It should be noted that the usual cash available at this time of the year is more than $13B.  Further more, the Projection from Controller's Office and Department of Finance shows $1 Billion Negative by July 31, 2009, reaching $24 B Negative by April 2010 if we continue to spend at the budgeted levels.


Conclusion – We spent too much and we are broke!

We are out of CASH. Unfortunately, we must borrow to keep the state running as budget cuts (or reductions in spending) will not fill the hole immediately.  Real cash reductions in spending would establish credibility with our lenders that we understand the gravity of the situation, and are taking serious measures to address the shortfall.  Bankers or lenders will want to know that we will be able to repay our debt over time.  We should reduce, at minimum, 15% of our Budget NOW as the delay in keeping higher expenses are cumulative. To do less will ensure that the cost of borrowing increases (assuming there are those who will buy our debt for a price), thereby extracting more of the State's revenues (your tax dollars) to pay for "gap funding" debt.

Honoring the Military

Privileged to serve Camp Pendleton in my district, I attended beautiful ocean front Memorial Day events in Dana Point and San Clemente where our fallen military heroes were honored. This month in the Assembly we are honoring our Vietnam Veterans, and I have requested the presence of Pete Hammer, a Dana Point resident and President of our 5th Marine Support Group.  Following his graduation from College, Pete joined the United States Marine Corps, successfully completed Officer Candidate School in Quantico, VA and was commissioned a Second Lieutenant. With his promotion to 1st LT, he finished his training as a Radar Intercept Officer (RIO) in the F-4 Phantom at MCAS El Toro and when deployed in Vietnam flew numerous close air support and air-to-air intercept missions while in-country. He was selected as an Aide for two Brigadier Generals who were the Assistant Wing Commanders of the 1st Marine Air Wing in Da Nang. Upon returning to the states he was then promoted to the rank of Captain and was an instructor in the F-4 while stationed at MCAS Cherry Point, North Carolina.

Pete was released from active duty in 1971 and I will be honored to stand with him on the floor of the Assembly where his record will become part of the State's history. 

It's Not Your Money?

Sometimes things get confused up here and ideology takes a front seat to reason. Recently I sat stunned in a committee hearing where the term ''Tax Expenditure'' was discussed.  Generally speaking, I thought a tax expenditure was when I paid a tax on a product I purchased, or when the state spent my tax dollars.  To the Majority Party (D) in Sacramento a ''Tax Expenditure'' is when they allow a tax credit, or a deduction from your taxes under a certain categorical exemption.  That is, allowing you to keep more of your money it is considered a ''Government Expense.''  The logical conclusion from that definition of a government expense is that your earnings actually belong to the Government in total. Scary thought, isn't it?

Help Us Bring Amber Home

Bob Welch, a local resident and the original drummer of the Chantay's (famous for the surf tune, ''Pipeline'') has requested our help.  His niece, Amber Dubois, 14 years old, disappeared while walking to school on February 13, 2009.  The family is offering a reward for information as they desperately search for clues that could lead to her return. Please check out the website: for more information and ways that you can help Bob and his family bring Amber home.

WE Connect – Helping Families Connect with Money, Opportunities and Dreams

WEconnect a one-stop-shop connecting Californians to programs and services for which they may be eligible. The site now houses an all-inclusive resource map which connects you to hundreds of locations offering free tax assistance, job fairs and other resourceful events.  For more information, please visit

Hope this newsletter was useful and that you hold good thoughts.  Life runs in cycles as we know and I have high hopes for a great tomorrow for our state.  There will be a silver lining in the cloud and summer is here – Enjoy!

Diane Harkey’s Desk to Yours
Archive Issues:

Volume 2 Issue 10
Volume 2 Issue 9
Volume 2 Issue 8
Volume 2 Issue 5

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