California analyst reports on state’s ‘astonishing’ cash balance

While the state's cash balance is strong, the analyst advised against more cash borrowing to balance the budget.SACRAMENTO, Calif. (CN) — California has what its legislative analyst called Wednesday an “astonishing” cash balance, a benefit to the state that warrants oversight.The Legislative Analyst’s Office, in a report, detailed California’s $90 billion cash balance, or its internal borrowable resources that the state controller taps to pay the bills. That balance reached a high of over $100 billion in May 2024, though it remains strong and allows the state to manage its cash flow without borrowing externally — saving on interest costs and forgoing a visit to the bond market.While the cash balance has declined and will continue on a downward path, the legislative analyst advised lawmakers against hastening that process.“This would include further cash borrowing to balance the budget, or further delays in repaying existing maneuvers,” the office said in its report. “The state has come a long way from the cash crisis of the Great Recession. We recommend the Legislature preserve that fiscal resilience, particularly given heightened economic and financial market uncertainty.”A core issue in the report is how the state pays its bills. California receives half its general fund revenue over four months, though it faces bills throughout the year. That requires the state controller to borrow money to meet those obligations, which can come from the outside bond market or from the state’s cash balance — money in various funds that’s been appropriated but not spent.California hasn’t needed to access external borrowing in a decade because of its strong cash balance. That’s despite sharp revenue declines in the wake of the Covid-19 pandemic.The analyst noted that the state budget — which has faced massive budget gaps for the past few years — isn’t directly linked to the cash balance. Money in funds the state controller uses comes from sources like gas taxes and fees, which typically aren’t affected by swings in capital gains.A big driver of the cash balance is money appropriated to various funds that hasn’t been disbursed as quickly as intended. In some cases, unplanned money came from additional state and federal dollars for infrastructure projects, reaching the funds as project timelines slowed, the analyst said.Those funds have assisted the state in regular cash flow management, as well as in meeting certain policy goals, the office added.For example, $6 billion from the cash balance went to a one-time payment to CalPERS, or the California Public Employees’ Retirement System, in the 2017-18 budget. Those dollars are repaid over time from the general and other funds. Because annual pension contributions also occur, a net savings is realized over the years.The cash balance has also been used to balance the budget. Money leaves the treasury, but the expense is delayed. That creates savings on paper that must be repaid in the future. It also is an interest-free loan, the analyst said.“A large cash balance confers genuine benefits,” the office added. “The state’s ability to manage daily cash flow without external borrowing saves interest costs and reduces bond market dependence — the risks of which were once made clear by the Great Recession-era cash crisis.”However, a healthy cash balance doesn’t translate into the state having a strong financial foundation. It also carries risks, as people benefiting from the cash borrowing aren’t always the same ones who must repay it, creating a potential disincentive.The analyst noted that before the Great Recession, the state’s cash balance ranged from 15% to 20% of its annual general fund disbursements. Between that recession and the pandemic, it grew to 25% to 30% of disbursements and now is around 35%.It called a decline in the cash balance a return to normal, not a crisis.“A decline below the pre-Great Recession range could be a genuine cause for concern and should prompt the Legislature to consider whether the pace of repayment for indirect cash loans needs to be accelerated,” the analyst said.Contacted by Courthouse News, the state Senate pro Tempore’s Office hadn’t yet commented. The Assembly Speaker’s Office couldn’t be reached for comment.Subscribe to our free newslettersOur weekly newsletter Closing Arguments offers the latest about ongoing trials, major litigation and rulings in courthouses around the U.S. and the world, while the monthly Under the Lights dishes the legal dirt from Hollywood, sports, Big Tech and the arts.Additional Reads