The Californian Economy - Part 1: History of Shortfalls for Schools & Social Service Programs; Signs of Improvements Since Economic Slump

Since the onset of the economic crisis, California has had its share of problems in finding ways to get creative on their budget in order to get through each passing fiscal year.

This year, state officials announced recently, that won't be the case.

The California Department of Finance announced last week that with the state having a stronger grip on their financial situation this year, nearly $1 billion in deferral payments for schools and social service programs won't be needed, and $1.8 billion in such late payments for those programs can be paid this month.

California schools can expect to get $1.57 billion from the state this month, while state community colleges will get $150 million and $142 million, originally scheduled to be paid in March, will go towards social service programs.

Meanwhile the state has cancelled nearly $800 million in planned deferrals--originally scheduled for March 2013--to state K-12 schools.

Deferrals on the rise in California since the Economic Crisis

California has heavily relied on deferred payments--which are payments on debts scheduled to be paid back at a later time--since the onset of the economic crisis. According to the Los Angeles Times, the state has routinely delayed payments to schools, colleges and social service programs statewide in order to avoid a shortfall when California is short on cash.

According to statistics collected last year from the nonpartisan Legislative Analyst's Office, the state first began relying on deferrals in 2001-02 to deal with a large midyear budget deficit after the dot-com bust, when a slew of internet-based companies went under. At that time, state officials deferred $1.1 billion in K-12 payments from June to July 2002 in order to achieve budget savings for that budget year.

However, the state's dependence on payment deferrals began rising in the 2008-09 period, when the state delayed $2.9 million in school payments as a way to balance out midyear decreases in state general fund revenues. And during the last three years, the state adopted a total of $6.3 billion in new payment deferrals, the nonpartisan group reports.

"Unlike the initial deferrals that only delayed payments by a few weeks, the more recent deferrals shifted payments by several months, placing a significant cash burden on school districts," the group wrote in their analysis last year.

Signs of improvement

However, Friday's news seems to signal signs that California may be on the slow, but steady climb towards economic recovery.

Gov. Jerry Brown's finance director, Ana Matosantos, credited the decision to "a sound budget, diligent debt management, and the passage of Proposition 30."

Matosantos refers to a measure, proposed by Gov. Brown as a way to save state schools, that passed this month at the polls on Nov. 6.

The proposition, which is projected to raise $6 billion for California's general fund and prevent major cuts to state schools, will raise the state's sales tax by a quarter of a cent for four years starting Jan. 1. The tax hike will also increase income taxes for people making $250,000 annually by up to 3 percent for seven years, retroactive to the start of the 2012 tax year.

While state officials are hailing Friday's announcement as a sign of fiscal recovery in the state, the L.A. Times reports that other financial problems still loom on the horizon, including $34.1 billion owed by the state to schools, local governments and other programs.

However, officials at the Brown administration say they have a plan to repay a large chunk of that debt by 2016.

"Schools and vital programs serving the needy had to shoulder much of the burden during California's frequent cash shortages," state Controller John Chiang said in a statement.