How long will Gavin Newsom ride a good economy?
Gavin Newsom is one lucky fellow.
Not only did he coast into the governorship of the nation’s richest and most populous state with token opposition, but he will be only the second governor of the past halfcentury to be inaugurated without a severe budget crisis.
Leaving whopping deficits to successors, thus forcing them to raise taxes, has been something of a tradition among California governors in recent decades. But Jerry Brown, who left one for his first successor, Republican George Deukmejian, in 1983, isn’t imposing that affliction on Newsom.
Brown championed a hefty increase in taxes to close the yawning budget deficit he inherited from Arnold Schwarzenegger in 2011. That tax hike, coupled with an expanding economy, generated a flood of money into the state treasury.
Annual general fund revenues jumped $30 billion or nearly one-third in seven years, mostly from personal income taxes on wealthier Californians. While spending also increased sharply — especially a 50 percent increase in per-pupil spending on K-12 education — Brown tempered ambitions in a liberal Legislature for vast new entitlement programs and insisted on creating and filling a “rainy day fund” to cushion the impact of a future recession.
Through September, revenues for the 2018-19 fiscal year were running $1 billion over the budget’s forecast. Newsom, therefore, should easily fashion a balanced 201920 budget for introduction just three days after his inauguration in January.
That doesn’t mean, however, that Newsom can continue to coast on the budget, easily the single most important aspect of governing California. For one thing, the economic boom that Brown enjoyed during his second governorship has already lasted much longer than normal and, as he continuously warns, California is overdue for a recession.
For another, Brown’s rainy day fund tops out at about $16 billion, but his Department of Finance has calculated that even a moderate recession could cut annual general fund revenues by $60 billion over three years. That reflects the state’s utter dependence on taxes from a relatively few very highincome Californians, a syndrome that Brown’s 2012 tax increase, later extended by voters, has worsened. Ironically, therefore, the factors that allowed Brown to right the state’s fiscal ship could make balancing the budget more difficult for Newsom when the inevitable economic downturn occurs.
Finally, there are Newsom’s own ambitions, reflecting his left-of-center political base. As he claimed victory in the June primary, Newsom laid out his agenda for cheering supporters: “Guaranteed health care for all. A ‘Marshall Plan’ for affordable housing. A master plan for aging with dignity. A middle-class workforce strategy. A cradle-to-college promise for the next generation. An all-hands approach to ending child poverty.”
The Newsom wish list would be costly, easily tens of billions of dollars. But he’s been coy about paying for it, suggesting that somehow his managerial acumen would make it happen. Late in the campaign, with victory in sight, he pulled back a little, saying he wanted to emulate Brown’s cautious approach to state finances.
Newsom can probably juggle his seemingly contradictory budgetary positions for a while. Brown and the Legislature bought him some time on health care by passing a budget “trailer bill” that creates a blue-ribbon commission to study health care for a few years.
However, sooner or later he must put up or shut up on that and other items on the agenda that pleased liberal voters. In that sense, a recession would almost be another lucky break for Newsom, allowing him to fudge on his promises without bearing the political cost for reneging.