A nonpartisan referee in California’s budget battles

In the upper levels of California government, Mac Taylor is indeed a rarity – he’s nonpartisan.

As the Legislative Analyst – he’s only the fifth one since the office was created 72 years ago – Taylor is the taxpayers’ watchdog over budget and ballot measures and their potential costs.  He is the Legislature’s nonpartisan fiscal adviser, a role that that frequently puts him at loggerheads with the governor and the executive branch regardless of the party in power.

Taylor has been with the Legislative Analyst’s Office since Jerry Brown’s first term as governor in the 1970s, serving in a number of important capacities before assuming the top job at the LAO in October of 2008.  Among his earlier roles was a 17-year stint as deputy to the previous Legislative Analyst, where Taylor oversaw the work of the K-12 education, higher Education, local government, state administration, and the economics and taxation sections.

So he came well prepared.

Now, with a department of 43 analysts and 13 support staff, Taylor serves as the top budget guru to both houses of the Legislature and oversees the preparation of annual fiscal and policy analyses of the state’s programs. In addition, he offers impartial analyses of all initiatives and constitutional measures qualifying for the state’s ballot.

Taylor is a California product, the son of parents who joined the exodus of south westerners who made their way to California following World War Two. He grew up just outside of Fresno, then made his way to the University of California at Riverside where he earned his Bachelor’s degree with honors in political science.  “I was more interested in the quantitative analysis side of public service than in politics and I had an opportunity to pursue my Master’s degree in public affairs at Princeton where they have an outstanding program so I went east to complete my education,” he says.

He went directly to LAO from there.

“I was incredibly fortunate to have three preceding people who were Legislative Analysts,” he says.  “One was Alan Post who really established the office and its reputation as a nonpartisan independent office.  I didn’t work under Alan but it was his reputation and stature that really led me to come to the office.  He was a great influence even though I didn’t really know him that well personally.  And the two bosses I had in the office, Bill Hamm and Liz Hill, were both role models, very strong and analytical individuals, and dedicated toward doing high quality analysis, individuals you wanted to work for and do your best for.  I thought they were both really great people and leaders.  It’s wonderful to have people like that who influence you in so many ways that you don’t always appreciate until later on.”

With his wife, Sherry, two daughters, a son, a grandchild, and a formidable professional responsibility on his hands, Taylor is an active man.  “I love it,” he says, “Life is good”.

Capitol Weekly settled in with Taylor recently to explore some questions around that professional responsibility.

Can we anticipate another budget fight and, if so, what do you think might be the nature of the disputes?

Clearly the kind of issue we have this year is different from what we’ve experienced in the past four years.  It’s minor and it’s also on the good side.

That is, instead of figuring that we have to cut more, to come up with other solutions, the budget situation got a little easier.  The nature and the magnitude of it are different from past years.  What the budget conference committees in the two houses are dealing with and with the Governor is which revenue numbers do they adopt, the Department of Finance’s or ours.  And are there going to be some augmentations, both sides are talking about fairly limited augmentations, and which areas are they going to be in?  The Senate was most interested in health care augmentations and the Assembly was more on higher education and welfare.  So there are those kinds of disputes but, again, much smaller than in prior years.

A year and a half ago, we were well below the Department of Finance’s numbers. You know, in light of the sort of volatility that we have in our revenue structure, the magnitudes aren’t that great, it’s about 2.7 or 2.8 billion in a budget year on a  base of 100 billion.  That’s less than a three percent difference.  But it is significant in that it’s primarily related to capital gains so we do have very different assumptions in what our models kick out.  And there are many years in which there are no significant differences between the two agencies. It really varies across the board.  This happens to be a year in which the economy is recovering.  The stock market and housing market are recovering in a manner which is a little bit better than what I think we could have expected and so we feel very comfortable with our revenue estimates but we don’t really fundamentally disagree with the administration.  No matter whose numbers you choose, you need to be cautious in committing money that we may not have two or three or four years down the road.

The LAO has been in existence since 1941 and the Congressional Budget Office wasn’t established until 1974.  Are the two similar in terms of responsibilities?

Oh yes, very similar, and I think from what I’ve been told that the CBO was modeled in large part after our office.  We both do these macro economic and expenditure estimates and forecasts.  We both do budget related information and we both do policy reports.  So we’re also policy experts.  There’s one big difference between the two offices.  They do not make recommendations whereas our office is statutorily directed to make recommendations.

Their role is the same as the one we play in that you don’t want the legislature to be dependent on those numbers provided by the executive branch.  So the CBO provides to the Congress a counter weight to the executive branch and the Office of Management and Budget. The CBO is well respected.  They are a good, talented agency.  We like to think that we do the same thing for the legislature of having an independent take on how the executive branch is implementing and administering programs and on the budgetary and fiscal estimates they make. We provide an independent assessment of those.

Are you ever accused of favoritism or bias?  How does your function avoid personal bias in your analyses, considering that we’re all subject to it to one degree or another?

I have to say it hasn’t been a big problem and I think that’s been because we work very hard to maintain our nonpartisanship and our independence.  And we do that in a lot of ways.  First of all, the people we hire.  We want to be sure that they want to do beta-driven analysis, that they’re not a strong ideologue on either side of the political spectrum.  We train them well.  We have several levels of review on the products and we reach out and really stress to people the importance that we review all sides of the issue.  Any time we put out something we’re contacting Democratic staff, Republican staff, groups on both sides of the aisle.

We want to talk to as wide an array of people as possible.  First of all, so people feel comfortable in providing us with information.  And that helps us.  It makes sure that we don’t miss something we should have thought about. It provides us with data that we may not have known was available, and so we do it not only for the perception that we’re open to people but for the reality that it helps improve our analysis.  Now to the question of whether we’ve ever been accused of bias, you have to ask other people about that.

I think that given the recommendations we make it’s clear that we upset people across the political spectrum with our recommendations on a political issue but I’d like to think that those people who are aware of the array pf products that we put out would recognize that there are many cases that on any particular administration where we’ve reported what they’ve done we’re critical of what they’ve done.  You can certainly see that in this administration where we commended the Governor for his local control funding formula he’s proposed and we were very critical of many of the things he’s proposed in higher education.  I think if you talk to people who’ve been around a while and have been aware of the whole array of products that we put out they would say that even if they disagree with where we ended up that we presented good information, that it’s thoughtful, that it’s beta-driven and that it’s analytically sound.

Just how critical is the use of accrual accounting and how is it employed in budgeting?

Accrual accounting deals with just when you should assign to a particular fiscal year a revenue or an expenditure, not necessarily when you pay it out or when you get the cash but when do you recognize it.  And there are different views on when you should do it.  We’re in a unique case right now on revenues where we accrue revenues even if we haven’t actually received them yet.  You receive them maybe in the future but do you accrue them back to when they should have been paid?  So, for example, maybe on withholding tax you pay every month and that means you pay about a twelfth of your ultimate tax each month.  Maybe not legally but in a way you kind of do because that’s when you have to pay it out. But at the end of the year you have to settle up in April.

Well if you have a large amount of money that you owe in April in one fiscal year, maybe you should accrue some of it back to the prior fiscal year. That is, the money that you owed from January to June in the prior fiscal year since you pay taxes based on a calendar year.  And so if you’ve underpaid in January through the whole year and you make it up in April, you paid it in one fiscal year even though you maybe should have paid a piece of that in the first six months of the prior calendar year.  And you didn’t get the cash until this year; the question is should you count that revenue for your budgetary total in the prior year?   It gets a lot more complicated than that but that’s an example.

You’re supposed to have general rules to guide you but our revenue accruals have gotten more complicated because we’re treating new revenues that were raised in Proposition 30 and Proposition 39 a little differently from the rest of our revenues.  And then expenditures are treated even a little bit differently but generally we accrue expenses so that if you make a commitment, let’s say you sign a contract in June, you accrue it as an expenditure in that fiscal year even though you may not pay the contractor until July.  That’s what accrual involves and it gets pretty technical pretty fast.

How would you characterize the condition of the state’s fiscal health at this time?

Well, I think we’ve characterized it as a stable condition.  If you thought of the state as a patient who had gone through a big trauma, we’re now in stable and improving condition.  But we still have some rehabilitation to go through.  And that’s paying off some of our budgetary debt, trying to get some of our retirement unfunded liabilities addressed and the fact that Prop 30 is a short-term solution in some ways.  We need to build up our reserves.  So right now we’re in much better condition than we’re been in he last four or five years.  It’s a stable condition and it’s improving as the economy continues to grow but we still need to be very careful because we have a lot of problems we have to work out.

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Ed’s Note: Jim Cameron is a regular contributor.