The Liberty Papers

The California Department Of Real Estate oversees and administers the state’s real estate agent and broker licensing program. People, such as san francisco real estate agents, are required to make use of these licenses to operate. During the big housing boom, the fees generated by the high level of real estate activity (and the agents/brokers who were licensed to enable that activity) has caused them to build up some a nice Trust Fund. But activity is down, and there may be trouble ahead:

DRE, as the department is called, gets all its money for its 344-person department from license fees, license exam fees and subdivision fees (which are going up, too). But all those things are down because fewer people are taking the license test or getting licenses, at least in California. There has been somewhat of a migration to the East Coast because some believe that Californian real estate is on the decline. In potentially valuable places like Lynchburg real estate agents are setting up and seemingly becoming successful.

Well what about development fees, are those rising or declining? It looks like it is declining. Homebuilding has been all but mothballed, but people are still looking for homes for sale in the city of Redondo Beach and nearby areas.

All these things have taken a $13.7 million bite out of the department’s $44 million budget.

For example, license exams have dropped from around 22,000 in March 2005 to just under 2,900 this past March. And the number of licensees dropped in March for a 14th straight month.

But don’t worry! They’ve got a trust fund! They’ve lent their reserves to the state of California, so all is well!

To make matters worse, the state Legislature and the Govenator have borrowed about $10.9 million from DRE reserves. If the state doesn’t repay that loan, and if the fees don’t go up, DRE projects its reserves will dry up and it’ll run out of money next year. In just over four years, DRE would be almost $88 million in the hole.

Wait… How could that make matters “worse”? How can they just suggest that the state might not pay back that loan — or worse, the implicit notion that they might do so out of higher taxes on the rest of Californians? If they’ve loaned the money to the state of CA, what could possibly go wrong? After all, the State of CA and the California DRE have two different revenue streams, so loaning from one pocket to the other is not in any way a fiscal end-around! This fiasco could be the reason why most real estate investors decide to take a look at out of state real estate investing instead so they don’t have to worry about problems like this, especially when it concerns money.

If it’s such a bad thing for the state of CA to borrow money from the CA DRE reserves, why is it a good thing that the US Federal Government is borrowing the surplus generated by Social Security payroll taxes?