Massive deficit is good news for California
SACRAMENTO >> As someone who watches the governor and Legislature fairly closely, I find it rare to see good news coming out of the Capitol. The state's leaders spend money wildly on every imaginable progressive priority, concoct myriad tax and fee increases, lavish handouts on public-employee unions and rail against the “greed” of private companies.
But, finally, we're seeing an encouraging development. According to the Legislative Analyst's Office, the state is facing a $68 billion budget deficit, which is 50% larger than the general-fund budget of Florida. In normal states, red ink isn't something to cheer about. In California, however, a money shortage is the only thing that imposes any fiscal limits.
Stein's Law says, “If something cannot go on forever, it will stop.” Named after the late economist Herb Stein, its point is government is not going to stop doing whatever it does until external factors force it to do so. Obviously, California officials aren't going to restrain their spending addiction on their own. States must (on paper, anyway) balance their budgets, so a deficit is the external
Could the Legislature possibly learn its spending lesson?
constraint we need.
We're a long way from a Day of Reckoning, the longpredicted but never-arriving time when officials, confronted by economic reality, change their ways. Never underestimate the ability of politicians to delay hard decisions by embracing accounting gimmicks that foist the problem on future lawmakers. We heard about that day during the pension crisis of 2012, and yet pension systems are in worse shape than ever and no one even mentions pension reform in the Capitol.
Some of us thought that last year's $31.5-billion deficit would put the kibosh on the spending train (and maybe
even on the $100-billion-plus actual bullet train boondoggle), but we were wrong. As columnist Dan Walters noted, Newsom “clawed back” some money that hadn't been spent, but was warned by the Legislature's budget analyst that this year's budget would be as much as $10 billion short. Newsom also shifted generalfund spending to special funds to paper over the problem.
Then the governor announced his grand achievement in his usual way. “In partnership with the Legislature, we have made deep investments in California and its future — transformative efforts that will benefit generations of Californians, and that this budget will continue to guide as we navigate near-term ups and downs in revenue,” Newsom declared after “closing” the deficit, before going on his merry way of lecturing conservative states about their governmental failures.
Now he faces the largest challenge of his political career thanks largely to downturns in the state's tech economy. As the LAO put it, “investment in California startups and technology companies is especially sensitive to financial conditions and, as a result, has dropped significantly. For example, the number of California companies that went public (sold stock to public investors for the first time) in 2022 and 2023 is down over 80 percent from 2021.”
Expect the governor and lawmakers to play the victim, blaming the situation on national economic conditions (higher interest rates, for instance) that are out of their control. Don't buy it. Consider that 18 months ago, California enjoyed a remarkable and unparalleled budget surplus of $97.5 billion. Lawmakers had the cushion to revamp our steeply progressive tax system, which makes it always dependent on boom-and-bust cycles.
With that much spare cash, Sacramento pols could have placed the state on solid fis