Gavin Newsom’s new budget is already leaking red ink as revenues fall behind
While Gov. Gavin Newsom gallivants around the country as a campaign surrogate for President Joe Biden – and to burnish his own national image – the state budget he proposed just six weeks ago is falling apart at the seams.
Last week, his Department of Finance indirectly acknowledged the budget’s problems, reporting that through January revenues were running $5.9 billion behind the new budget’s assumption for the current fiscal year.
On Tuesday, the Legislative Analyst’s Office, which advises the Legislature, increased its estimate of the budget’s deficit, which Newsom had originally pegged at $38 billion, to an eye-popping $73 billion after toting up Newsom’s proposals and decreasing its revenue estimate.
If the downward revenue trend continues, the 2023-24 budget could wind up in a deep hole and there will be much less money available for the 2024-25 fiscal year that begins on July 1.
The shortfall was particularly acute in January, a key month on the fiscal calendar because quarterly payments for personal income taxes were due. The month’s income tax payments were $5 billion below the $20.4 billion the administration expected to collect.
When he unveiled his 2024-25 budget in January, Newsom proposed a series of fiscal maneuvers to close the gap, very few of which were actual spending reductions.
He tapped the state’s emergency reserve and dug deeply into the bag of tools that the state has historically used to paper over deficits, including spending deferrals, loans from special funds and accounting tricks, such as a maneuver involving school aid.
The Legislature’s budget analyst,
Gabe Petek, had originally estimated the deficit at $68 billion, largely due to revenue projections about $15 billion lower than the governor’s over the three-year “budget window,” from 2022-23 through 2024-25. He later declared that Newsom’s action could offset a $58 billion shortfall. On Tuesday, however, Petek’s staff added $15 billion to the estimated deficit, bringing it to $73 billion.
The new revenue numbers and projections imply that Petek’s scenario is much closer to reality than Newsom’s. They also imply that, if Newsom is trying to skate through the final three years of his governorship without making some basic fiscal adjustments, he’ll leave a big mess for his successor.
The deficit, whatever its true dimensions, appears to be detached from California’s underlying economy, and is rather what fiscal mavens call a “structural deficit” – one in which baseline revenues and baseline spending are fundamentally imbalanced. And in fact both Newsom’s budget and Petek’s analysis agree that the state faces deficits of roughly $30 billion a year at least for the remainder of his governorship.
The state’s economy may not be booming, but it is generally positive, with low unemployment. Nevertheless, Newsom wants to tap the “rainy day” reserves that are meant to offset a serious economic downturn.
Using reserves now and employing other short-term actions would merely postpone the day of reckoning and worsen its impact.
That danger is illustrated by the aforementioned school aid maneuver, which would, Petek’s office says, “allow schools to keep $8 billion in cash disbursement above the minimum requirement without recognizing the budgetary impact of those payments.”
“This proposed maneuver is bad fiscal policy,” the analysis continues, saying it “creates a binding obligation that will worsen out-year deficits and require more difficult decisions in the future.”
If revenues continue to fall behind the Newsom budget’s relatively rosy projections, avoiding hard decisions to cut spending and/or raise taxes would require even more elaborate budgetary tricks like the school finance sleightof-hand that would make future budgets even more imbalanced.
Petek wants his bosses in the Legislature to get real with true cuts in spending, particularly money for items that had been budgeted but not yet spent. But doing so means they would have to reduce spending that their allies, such as public employee unions and advocates for educational, health care or social services, want to preserve, or raise taxes that are already among the nation’s highest.
That’s why they will be tempted to adopt a bag of tricks, regardless of future impact.
Dan Walters has been a journalist for nearly 60 years, spending all but a few of those years working for California newspapers. He has written more than 9,000 columns about California and its politics and his column has appeared in many other California newspapers. He writes for CalMatters.org a nonprofit, non-partisan media venture explaining California policies and politics.
Last night was surprisingly calm, all things considered. I told my husband, Peter, that he should not plan to get a good night’s sleep. I told him this because Peter has never had a cat, and yesterday, we adopted one.
I have had several cats over the years, but my last cat, Lucy, died just a few months before I met Peter, 10 years ago. Peter has had dogs all his life and knows nothing about cats (which means every cat who has ever met him finds him fascinating).
So we decided we would adopt a Mexican cat and take it to and from Mexico with us. Last Saturday, we had our first visit with Felix.
Felix is an adolescent. He was a stray cat, so we don’t know exactly how old he is, but the kind ladies who rescued him are guessing he is about 5 months old. Marsala and her sister, Elena, and Elena’s daughter, Daniela, brought him over to visit. I thought, right then and there, Felix was a very well- behaved kitty. I expected him to be wild and scared in a new house. But he stretched out on the sofa and looked as if he might go to sleep.
“What a mellow kitty!” I told them.
“He is very relaxed,” Elena said. So after we had all the supplies we needed, they brought Felix to live with us. I could tell Daniela, who is 13 and wants to be a veterinarian, was a little sad.
“Will you miss him?” I asked. Daniela nodded. But I showed her the new litter box and the carrier we bought to bring Felix back with us to the U. S., and his fluffy little bed and the two matching bowls I’d bought for him at the market. Daniela seemed to approve, and she left her little charge with us for his first night.
He fell fast asleep— until the middle of the night.
“What was that?” Peter asked. Peter sleeps with earplugs when we are in Mexico, but the noise outside our bedroom woke him. I went to investigate. It appeared there had been some small-scale vandalism in the night. The garbage can had been mysteriously overturned and bits of crumbled bread were all over the floor.
“Oh, Felix!” I said.
Felix came running to me and bumped his head against me. Then he circled around me as I cleaned up breadcrumbs, purring all the while.
We fell back to sleep. A little later in the night, we heard meowing. It got louder and louder.
Marcela and Elena rescue dogs and cats from the streets. At last count, they were caring for 11 dogs and three cats, so their house must be very lively. When Felix woke, there was no one in the room but him. I imagine it must have been a surprise, waking up all alone.
“Felix!” I called. “We’re in here!” Felix came running. He jumped up on the bed, discovered the two gringos under the covers and started purring again.
So far, Felix seems to be happy in his new home. He has discovered that Peter keeps all sorts of interesting things on his bedside table that can be knocked off and played with in the middle of the night. He has discovered how easily the garbage can be tipped over and how much fun can be had with the contents. And he has discovered the two sleepy people in bed who—if things get too scary—can be relied upon to scratch his chin.
I think Felix is liking his new life. Till next time,
Carrie
Carrie Classon’s memoir is called “Blue Yarn.” Learn more at CarrieClasson.com. Photos of Mexico and other things can be found at CarrieClassonAuthor on Facebook.