Budget deficit may lower Newsom’s high ratings
The job is about to get a lot tougher for Gov. Gavin Newsom. He faces the certainty of whacking government services while raising taxes.
Newsom hasn’t uttered the feared “T” word publicly. But jacking state taxes even higher in infamously tax-burdened California is inevitable.
Every governor who has faced a significant budget deficit for the last 60 years has reluctantly hiked taxes.
The COVID-19 pandemic — and the collapsed economy it created when many businesses were ordered closed and people told to stay home — will also force the governor and Legislature to cut services, at the very time increasing numbers of Californians need assistance most.
Until now, Newsom has flourished politically in the crisis. In a recent poll of California voters, his job approval rating had climbed to an astonishing 70%.
Now comes the hard part. He’s facing a budget deficit his Finance Department estimates at $54.3 billion. That’s a colossal hole. In January he proposed a $222 billion budget for the fiscal year starting July 1.
That initial budget “is no longer operational,” Newsom says. No kidding. He’ll offer a revised one on Thursday.
Steep taxes and deep cuts can repair a bleeding state budget, among other tools — none of which can do it alone.
Fortunately there’s roughly $22 billion stashed as a reserve and surplus. And Newsom and other governors are pleading for more federal help. President Trump seems unenthusiastic, but Democratic House Speaker Nancy Pelosi of San Francisco has been pressing for $1 trillion to send states and local governments.
David Doerr is the chief tax consultant for the California Taxpayers Association. For decades, he was chief consultant for the state Assembly Revenue and Taxation Committee. In a budget balancing brawl, Doerr says, “The first thing you look for is accounting ‘reform,’ which is a nice way to say ‘gimmicks.’ ”
Money can be “borrowed” or pilfered from special funds — such as truck weight fee and fishing license stashes — to help bolster the general fund, the state’s main checking account.
Doerr says he would offer a tax amnesty program. There’s bound to be lots of people who owe the state back taxes with mounting stiff penalties they can’t afford to pay. Forgive the penalties for a short period and entice them to pay merely the delinquent taxes.
Doerr’s formula for digging out of a deficit hole: “One-third revenue, onethird cuts, one-third accounting reform/ gimmicks . ... ”
In 1983, Republican George Deukmejian agreed to a “trigger tax.” If the economy continued to slump, that would trigger a sales tax hike. But it rebounded and the tax wasn’t needed.
Democrat Pat Brown also faced a deficit in 1959 and raised taxes a record amount his first year as governor.
Republican Ronald Reagan ousted him in 1966. But Reagan then was drenched in red ink and had to raise taxes steeply.
Freshman Republican Gov. Pete Wilson faced a monstrous black hole onethird the size of his general fund in 1991. He filled the gap half with spending cuts, half with tax hikes.
Arnold Schwarzenegger finally agreed to a huge tax increase in 2009 as the Great Recession shredded the budget. But voters repealed half of it.
Then Gov. Jerry Brown, facing a $27 billion deficit, went to the ballot with an initiative to tax mainly rich people. That sounded good to the middle class.
Newsom and legislators must choose their poison by June 15, the constitutional deadline for budget passage.
Get ready for howls of public protest, political demagoguery and falling Newsom job ratings.