Capitol Alert: Halting building sale results in larger deficit, internal borrowing

More notes on Gov. Jerry Brown's decision today to end the state sale of 11 office properties to private investors:

• The deficit grows from $25.4 billion to $26.6 billion, as Brown foresaw in a previous press release. By eliminating the sale, the state will not receive a onetime infusion of $1.2 billion, so that amount gets tacked on to the previous deficit total.

• Brown's proposal nearly doubles the amount of internal borrowing from special funds. His previous proposal relied on $1 billion in internal borrowing; the new plan takes that up to $1.8 billion. The governor also relies on $361 million in delayed repayment on previous internal loans.

Whereas the general fund relies mostly on tax revenues, special funds receive money from fees related to specific professions and activities. These range from the Immediate and Critical Needs Account that funds court construction (paid by higher civil and criminal fines) to the Professional Engineers' & Land Surveyors Fund (paid by professional licensing fees).

• The Department of Finance believes this is about as much as the state can borrow internally. In previous years, such borrowing was one of the ways state leaders avoided further cuts or taxes. If Finance is correct, Brown's announcement closes internal borrowing as a compromise solution to buy down other cuts or taxes.

"With a couple of exceptions, we've pretty much swept these special funds as far as we can go by taking them down to a reserve level that would not have any programmatic impact," said Department of Finance spokesman H.D. Palmer.

An example of why Brown's new internal borrowing idea makes it more challenging to close the deficit: Brown's budget calls for a $200 million unspecified reduction to trial courts. The nonpartisan Legislative Analyst's Office recommended transferring $100 million from the courts' Immediate and Critical Needs Account to help save that money. But in his proposal Wednesday, Brown took the $100 million to replace the state building sale cash, so lawmakers will have to look elsewhere to save money on trial courts.