Walt Disney couldn’t dream up a rollercoaster to rival the curves that California’s fiscal policymakers have had to navigate over the past two decades.
In an historically short time frame, the state experienced the 2000 energy crisis that forced out then-Gov. Gray Davis; paid off $7 billion of deficit bonds issued by Gov. Arnold Schwarzenegger in 2003; survived the 2008 Great Recession; worked through a worldwide pandemic that shut down the state (and had budget leaders rewriting the budget on a month-by-month basis in spring 2020) and then created a fiscal 2022 budget off a mind-boggling $97.5 billion surplus.
Keely Martin Bosler, 47— who stepped down Thursday as director of the California Department of Finance, the governor’s chief fiscal advisor and the state’s fiscal watchdog — has helped craft the financial analysis and advised the Legislature, and later governors as it all played out.
Bosler was appointed DOF director in August 2018 by former Gov. Jerry Brown, and re-appointed by then-incoming Gov. Gavin Newsom a few months later. Her career as a California fiscal policy advisor began in the state Legislative Analyst’s Office in 2000, but she also has worked as Brown’s cabinet secretary, staff director of the Senate Budget and Fiscal Review Committee, as budget director of the State Department of Corrections and as associate director of the DOF.
“I really fell in love with the work of state government and working on the budget specifically, because I started in 2000 and cut my teeth on public finance when the state was experiencing budget crisis after budget crisis,” Bosler said.
California Department of Finance
Right after earning her master’s degree in applied economics from Cornell University, Bosler interviewed for and secured a position as a senior fiscal and policy analyst in the California Legislative Analyst’s Office, which provides analysis that helps the Legislature make fiscal decisions and design a budget. The LAO is the DOF’s counterpart advising the Legislature, while the DOF, part of the administrative branch, advises the governor.
Her first assignment at the LAO’s office was to work on energy policies as the state experienced the rolling blackouts of 2000 that would eventually lead to executives at Houston-based energy company Enron being implicated in a price-fixing scheme, and forced the recall of then-governor Davis.
The state had borrowed its way out of the energy crisis by issuing $7 billion of deficit bonds to fund operations, continued to struggle financially during the heady economic boom of the early aughts, and then had to dig its way out after the 2008 economic crash.
The state’s rating hit BBB and Baa1 from Fitch Ratings and Moody’s Investors Service in 2009. S&P Global Ratings dropped California to A-minus in January 2010.
But it has since paid off the deficit bonds, and much has changed for the state from the dark days of 2007-2009 when California ranked 42nd, one of the worst economies in the nation.
The Golden State retained AA, Aa2 and AA-minus-level ratings from Fitch, Moody’s and S&P, through the pandemic. Fitch and Moody’s assign a stable outlook, while S&P assigns a positive outlook.
“The pandemic has really given me a new perspective on what a crisis is,” Bosler said. “There are political crises that come up weekly, or monthly, but they are not in the same category as the pandemic.”
In California, the pandemic caused revenues to drop precipitously after Newsom ordered the closure of all but essential businesses in March 2020. The state lost 2.6 million jobs in March and April, which is twice the 1.3 million the state lost over a 20-month period during the Great Recession.
It was a time of extreme uncertainty, because not only had revenues fallen dramatically, but the federal government had pushed income tax return filing deadlines from April into July.
“That was a wild time,” Bosler said. “It is a great example of how timing is everything. When we put together a forecast in April 2020, I can’t think of a more uncertain time in the pandemic. We didn’t have a lot of information about the virus, the whole world was shutting down, the unemployment rate was through the roof and economic indicators were plummeting.”
Working with the governor and lawmakers, Bosler, and Legislative Analyst Gabriel Petek helped craft plans that would trigger budgetary cuts by August 2020 and spend down the $16 billion surplus, if revenues continued to decline and anticipated federal relief didn’t live up to expectations. (The final budget is usually signed by the governor on July 1, the beginning of the fiscal year.)
When asked if he ever had moments in which he was struck by the weight of providing fiscal advice for a state that has an economy larger than some countries, Petek recalled when he and Bosler were asked in May 2020 to speak to the Assembly after the governor’s May budget revisions came out.
“I have a vivid memory in the early days of COVID-19, when the Assembly held a budget committee hearing and asked Keely and I to speak on the floor of the Assembly,” Petek said. “I was struck by the importance of the moment. I was speaking for lawmakers and listening to what Keely [relayed from the DOF’s perspective]. Anyone working in public policy couldn’t help but be awestruck in the moment.”
The state’s Department of Finance had sent a letter to the Legislature ahead of budget talks in March saying the state’s borrowable resources had declined from $47 billion to $8 billion, but by the end of the fiscal year in July, the state still had $37 billion, Petek said during The Bond Buyer’s California Public Finance conference in October 2020.
Fortunately, revenues recovered as swiftly as they had declined coming in $8.6 billion higher than anticipated for the first quarter of 2020.
By November 2021, Petek reported, state revenues had grown by 31% to $222 billion for the 12-month period ending 2021, the fastest growth in the last three decades. The state also had a $31 billion surplus and received $26 billion in federal relief to pay for pandemic costs.
“We could never have guessed how quickly we would accelerate out of that recession,” Bosler said.
Petek, who worked at S&P Global Ratings as a managing director and sector lead in U.S. Public Finance for two decades before being named to head the Legislative Analyst’s Office in January 2019, described a collegial working relationship with Bosler.
“You won’t get me to say anything controversial. She was great,” Petek said. “If we had disagreements or differences, Keely’s approach was to just call me directly. She would ask questions, and make sure she fully understood where we were coming from, before critiquing. Her approach helped one side or the other better understand and resolve any issues, and sometimes to just agree to disagree.”
Petek described Bosler as a “very sophisticated economic thinker,” able to not only figure out how to translate lawmakers’ ideas into budget policy, but also to consider the macroeconomics of the Federal Reserve’s economic policy and the impact it could have on California.
Though Bosler said she is looking forward to spending more time with her husband, Mitchell, and two daughters, her voice conveys enthusiasm as she discusses the work of creating the fiscal backbone of the state’s public policies. She hasn’t announced yet where she will go next and whether it will be government or private industry.
“During the bad times, work on the budget is about prioritizing the things most needed,” Bosler said.
She has been asked by colleagues how she could be part of making devastating cuts after the 2008 economic crash, but it “felt like we were doing all that so we could make it the least bad outcome,” Bosler said. “That kind of shrewd prioritization during those bad times was really important work.”
Sen. Nancy Skinner, D-Berkeley, the Senate’s budget chair, described the cuts made to the budget in 2008 as “life or death,” because they involved such moves as making cuts to MediCal (the state’s healthcare plan for impoverished residents) programs that paid for medical care for impoverished seniors and the disabled.
“Keely has certainly been through the wringer being director at DOF (and in her roles as a fiscal policy advisor in California), including overseeing two of the largest budgets in the history of the state,” Skinner said. “Consider the complexity when you are trying to craft a $300 billion budget in a relatively short time.”
The state has now had two years of record-setting surpluses. The first of $75.7 billion in 2020, and then the $97.5 billion it had to work with this year.
The state’s process is that the governor and the Department of Finance deliver a preliminary budget to the Legislature in January, and then lawmakers shape it working in their own budget priorities.
Office of Nancy Skinner
In describing the challenges of crafting a budget for the past two years, Skinner said: “If you look at what Newsom, who is really expansive in his thinking and likes to push the envelope, has introduced with his bold new programs; and consider that then the DOF has to come up with a balanced budget that takes into account all of California’s existing programs, as well as Newsom’s new visions. Then that is presented to the Legislature, and we have our own ideas.”
“It’s a lot of give and take into how you balance that,” Skinner said. “It’s a really interesting process and we have been able to do it. Keely has been in the eye of the storm for many years now, and with a steady hand of expertise.”
Skinner, who has also worked closely with Joe Stephenshaw — 47, who has been appointed to replace Bosler, pending approval by the state Senate — believes the DOF will be in capable hands after Bosler moves on. Like Bosler, Stephenshaw has worked in different state fiscal capacities, including a stint with the LAO and as Newsom’s cabinet secretary leading the governor’s infrastructure team.
Bosler will be missed, those who worked with her said.
“Keely is just a great California story,” said Assemblymember Phil Ting, D-San Francisco, who chairs the Assembly budget committee. “She grew up in rural California in the most northern part of the state.”
Bosler grew up on a dairy farm but joked that her parents knew from about the first grade she wouldn’t be the one to stay and run the farm. “It was a beautiful place to grow up and I love to visit.”
Ting added he was impressed by her ability to remain calm during really stressful times, particularly at the height of the pandemic-caused economic uncertainty.
“She has always been the the consummate public servant, and has always put work for California first,” Ting said.