California budget uses the Ohtani playbook
Shohei Ohtani is the only Major League Baseball player who can both hit and pitch at an elite level.
Perhaps he should manage California’s state budget, too.
Just look at his new contract. This winter, Ohtani signed what was initially reported as a 10-year, $700 million contract to play for the L.A. Dodgers. But the real details were different.
To leave the Dodgers more money to assemble an elite team around him, Ohtani agreed to collect just $2 million annually for the next 10 years. The team would defer the deal’s balance, some $680 million — and pay it to Ohtani more than a decade from now, when he is retired. To find a financial document with more deferrals than Ohtani’s contract, you’d have to look at the state budget Gov. Gavin Newsom proposed last month.
Attempting to close a $58 billion budget gap, Newsom is relying on a stunning $10 billion in deferrals. Among the lowlights: the proposed budget defers payments to the state’s two university systems, suggesting they borrow instead. The budget also delays $1.6 billion in transit grants and $700 million in school facilities. And in an accounting gimmick, Newsom saves $1 billion by pushing the last state payroll of the 2024-25 budget year back one day, into a future budget year.
These $10 billion-plus in deferrals don’t include education, which Newsom and Democrats claim their budget doesn’t cut. But that’s deceptive. The state’s non-partisan Legislative Analyst’s Office found that California is actually reducing spending on schools and community colleges by $15.2 billion, relative to the budget enacted in June 2023. The way the state does this is too complicated to explain here — it involves the convoluted three-part Prop 98 funding formula. The short version: Newsom is charging $9 billion in reductions to the 2022-23 school year and redefining these cuts as a reset of the funding baseline.
Meanwhile, the same budget makes few cuts in an expanding state bureaucracy that has seen significant pay raises recently. Staffing increases and pay raises will produce even larger pension obligations in years to come. Payments to retired workers, as Ohtani understands, are a form of deferred compensation.
Why is the budget so out of whack? For years, I’ve conducted a long-distance argument about this with David Crane, a former UC regent and state pension fund board member who founded a political organization, Govern for California, to elect more publicspirited lawmakers.
Crane argues that California governance fails because our politicians lack the courage to take on the state’s powerful lobbies.
I argue the problem is structural — that California’s broken state constitution pushes the budget out of balance.
But in this budget season, Crane has the better side of our argument. California is not in a recession. The governor and legislative Democrats are well-positioned to make hard choices now. By deferring so much, they would make future budgets hard to balance, and push more costs onto younger Californians.
Which is why our leaders should take Crane’s advice, and do the hard work of evaluating programs for effectiveness and cutting those that don’t work. State agencies and local governments should enact Crane’s best idea: stop spending billions on retiree health care costs and instead have government workers rely on federal programs like Medicare and Obamacare.
Ironically, when details of Ohtani’s contract were first disclosed, top state financial officials criticized the deferrals, complaining that Ohtani might dodge California’s income taxes by leaving California by the time that $680 million is due him. They had a point — so why imitate Ohtani now?
The truth, harder than an Ohtani fastball, is that California doesn’t have time to waste with deferrals. Tax receipts are already running billions behind the revenue projections in Newsom’s budget. If the governor were to withdraw his proposal and offer a budget of rigorous reforms, he’d be hitting a fiscal home run.