Budget

The good news is that a tax increase measure has been pulled from the November ballot. The bad news is that Governor Newsom and legislative leaders announced a budget deal that draws from taxpayer reserves and thereby boosts pressure for a tax increase down the road.

Earlier this week a reporter asked me to comment about a bond under discussion in the Legislature. I responded that the costs of past obligations already crowd out spending on current programs…

Yesterday the Los Angeles Times published an article entitled Newsom called it a ‘gimmick.’ Now he’s using the trick to lower California’s massive deficit in which the Governor’s spokesperson defends the proposed budget and challenges readers to come up with their own solutions to the deficit. I have five such solutions to propose, all of which pertain to reeling in extraordinary patronage spending on public employees:

SACRAMENTO — With a windfall of cash five years ago, Gov. Gavin Newsom said he was doing away with a state budget “gimmick” one of his predecessors relied on to shave about $800 million off a deficit during the Great Recession.

Yesterday Governor Newsom, Senate President pro Tempore McGuire and Assembly Speaker Rivas confirmed they still intend to close the budget deficit in part by drawing half of the state’s budget reserves when they finalize the budget in June.

I’ve been trying to understand why Governor Newsom has proposed such a reckless budget. The only answer I can come up with is that he hopes to escape California before the consequences of that budget are suffered by being appointed to President Biden’s Cabinet should Mr. Biden be re-elected in November.

Despite a healthy national economy, California has a budget deficit that Governor Newsom proposes to close in the main by drawing on budget reserves, borrowing money, shifting funds, and deferring spending — ie, steps normally taken only during recessions.

Governor Newsom postponed the annual State of the State address scheduled for today, apparently (according to Politico) until the final results of Proposition 1 are known.

State taxpayers got more bad news this week when the State Senate released its proposed early action plan for addressing California’s budget shortfall in which we can find nothing of substance that differs from Governor Newsom’s plan.

Why have corporations, unions and associations put up more than $10 million that Gov. Gavin Newsom is using for state and national advertisements featuring him? The answer is that Newsom has delivered billions of state dollars to them.

Shohei Ohtani is the only major league baseball player who can hit and pitch at an elite level.

Perhaps he should manage California’s state budget, too.

The Newsom Administration is circulating a rebuttal to my criticism of the Governor’s Proposed 2024-25 Budget. As a reminder, that criticism is that Mr. Newsom proposes to draw on the Rainy Day Fund even though the country is not in a recession and doing so would seriously impair the state’s ability to preserve public services in a recession.

Lieutenant Governor Eleni Kounalakis and every other candidate for governor in 2026 should be paying very close attention to the Multiyear Forecast in Governor Newsom’s Proposed Budget.

Next week my students will start reading through Governor Newsom’s proposed state budget for the next fiscal year, which was released today. Before they do, I’ll be sending them a 2019 column from the LA Times entitled, “The one-day, $1-billion California budget gimmick that has lasted for almost a decade,” which is about a budgetary maneuver employed in 2009.

Last month, I wrote about the unique opportunity Governor Newsom has with his next budget to “reinvent government” as he called for in his 2014 book, Citizenville. Next week we will learn if he plans to do so.

Last week the Orange County Register published a lengthy article about California’s skyrocketing spending and budget deficit that included some comments from the Department of Finance and Legislative Analyst’s Office that might lead readers to conclude incorrectly that the governor and legislators don’t have authority over much spending. Some of the comments are non-controversial but some incorrectly imply a lack of authority over statutory spending, some are imprecise about funding sources, and some are striking in their omissions.

In 2013, then-Lieutenant-Governor Gavin Newsom published a book entitled “Citizenville” in which he argued for a government that kept pace with changes elsewhere in society. Asserting that “we must inject a more innovative, entrepreneurial mind-set into government,” Mr. Newsom wrote that “we simply cannot have a government that relies on bureaucracy and maintaining the status quo.” I hoped his vision would be realized. But a decade later, half of which Mr. Newsom has presided over as governor, California’s bureaucracy is bigger than ever, residents would be hard-pressed to point to a single innovation, and the status quo is still the status quo.

General Fund Expenditures Per Capita have climbed 63.9% since Governor Newsom took office, growing at more than twice the annual rate at which those expenditures grew under Governor Brown (10.4% vs. 4.7%):

Last Wednesday, the Commerce Department reported U.S. GDP grew at a 5.2% clip in the third quarter. The next day, Governor Newsom told a debate audience that the economy is “booming.” But Friday, California’s Legislative Analyst’s Office said that state tax revenues are falling far short of forecasts. When combined with General Fund spending that has grown more than 50 percent over the last five years, the drop in revenues portends another large budget deficit for California.

Dear Legislators,

This week the Biden Administration announced that personal income rose 0.4% in April, consumers increased spending sharply, U.S. economic activity is at its highest pace in more than a year, and the unemployment rate is at an envious 3.4 percent.

Yesterday the Legislative Analyst’s Office (LAO) released its Multiyear Budget Outlook through fiscal year 2026-27, forecasting $52 billion of deficits over that period.

We couldn’t agree more with Legislative Analyst Gabe Petek that it’s best to solve the deficit without using reserves, which are already woefully short of the amounts needed to protect essential services in the event of a recession.

The Legislative Analyst’s Office (LAO) has forecast a budget shortfall of $25 billion for Fiscal 2023-24 even if a recession does not occur.

We scratched our heads Friday when — despite a steep fall-off in the stock market and a first quarter contraction of the US economy — we learned the May Revision of the Governor’s Proposed Budget expects rosy tax revenues for the 2022-23 fiscal year commencing July 1. After reading the document, we learned how that happened:

Earlier this week DOF released the Governor’s Proposed Budget for the fiscal year starting July 1. At 400 pages it takes time, a process we have now completed. Some initial thoughts follow:

Tomorrow the CA Department of Finance will release the “Governor’s Proposed Budget” for the 2022-23 fiscal year that commences July 1. At nearly 300 pages, it is one of two documents providing deep insight into the state government.* I’ve been reading them for nearly two decades now and offer a few tips:

In January, the 2022-23 Governor’s Budget will be made public, after which public hearings will commence, followed by public distribution of the May Revision to the Governor’s Budget and public enactment of the budget by June 30. Guess what’s not public during that period? Political donations from beneficiaries of budget spending.

Dear Legislators,

We enjoyed reading the Senate Budget Plan and Assembly Budget Blueprint for 2022-23. These items stood out to us:

Dear Legislators,

In January the Department Of Finance will issue the Governor’s Budget for 2022-23. No section will be more important than the Stress Test, which forecasts revenue losses in the event of a stock market decline such as in 2001-3 and 2008-9.

Dear Legislators,

The Legislative Analyst’s Office is filled with talented people who occasionally take on impossible tasks. Take LAO’s recent Fiscal Outlook for Schools in which it boldly predicts that “capital gains revenue [will be] strong in 2022‑23.” I can’t predict the stock market next week much less next year but unlike the state I’m not depending on it to finance schools that require stable annual funding. If I did, I’d keep loads of cash on hand. That’s because the annual performance of stock markets looks like this:

California needs at least $100 billion of reserves. Don’t take our word for it. See page 245 of the Governor’s Budget:

From January through June last year, the California Legislature held hearings about a proposed budget for the 2021-22 fiscal year that allocated the majority of $300 billion of spending to healthcare corporations and government employees who — during that very same period — made political donations to lawmakers that weren’t disclosed until July 31, a month after the budget had been signed into law.