California Auditor: State Has $127 Billion Net Asset Deficit

The California State Auditor has released the state government's audit for the 2011-12 year (PDF). The state collected $218 billion (including $60 billion in federal aid, $104 billion in state taxes, and $51 billion in various fees and charges), but spent over $225 billion, a deficit twice the size of the year before. On the books, the state has $199.9 billion in assets but $215.4 billion in liabilities; eliminating assets unpledgable against obligations results in an unrestricted net asset deficit of a staggering -$127 billion. Put succinctly, the state has booked $127 billion more in promises and liabilities than it has assets to pay for them. (Part of this is because the state borrows to build things for local governments but turns title over to them, which is running up debts.) It's been getting deeper every year.

The report did not include the full cost of state retiree health and pension costs, so the real amount is probably much higher.

In November, California raised its top income tax rate to 13.3 percent, now the highest in the country. The change was retroactive to the beginning of 2012 (as was a recent clawback of a business deduction), so a burst of revenue will likely happen in the short-term. In the long-term, it depends on your worldview: does a high level of state spending promote economic growth, or will high taxes drag economic growth?