California Budget Deal Numbers Don’t Add Up

Commentary

The budget deal hammered out June 27 by the Legislature and Gov. Gavin Newsom achieved its major purpose: Getting him through the current budget cycle until next year’s Democratic presidential primaries.

Of course, that may not matter. President Biden might take one of those rejuvenating potions they advertise for seniors on late-night TV, while dodging numerous ethics scandals, and cruise through challenges by Bobby Kennedy Jr. and others to be renominated on his way to a second term.

In the event Biden drops out, Newsom has avoided—so far—the budget crashes that plagued his predecessors in their stalled bids for the Oval Office: Govs. Pete Wilson in 1976, Gray Davis in 2004 (recalled in 2003), and even Arnold Schwarzenegger in 2012 (biographer Ian Halperin said he was working on amending the Constitution to allow foreign-born candidates).

Newsom’s budget announcement included all the buzzwords from his travels around the country preparing for his presidential bid: “fiscal discipline … budget reserves … investments in public education … homelessness investments … global leadership on climate … clean energy … California of the future … computer chips … benefit disadvantaged communities … create hundreds of thousands of jobs.”

Of course, this all was supposed to have been passed by the June 15 constitutional deadline. But that day a “sham budget,” as everybody calls it, was passed to remove the risk of legislators having their pay docked for failure. Although even that chance was remote, as I noted in The Epoch Times, because of a 2012 court decision.

It will be some time before the enacted budget is up on the governor’s budget website. Then I can do a more thorough analysis. But for now, we can use the Floor Report from the Assembly Budget Committee.

Budget Details

The budget spends $310.8 billion overall for fiscal year 2023-24, which begins July 1. General-fund spending, the key datum, will be $226 billion—close to the $224.1 billion of the governor’s May Revision and the $223.6 billion of his original proposal in January.

As I detailed in my article on the May Revision, that keeps spending at 7.2 percent of Californians’ personal income—well above the 6.2 percent limit I have identified for 20 years. Above that limit, the state inevitably gets into budget trouble and has to enact more cuts.

The main item Newsom wanted, but gave up on in the end, was initial funding for the $16 billion Delta Conveyance tunnel project beneath the San Joaquin Delta. It’s another sign California, despite touting itself as the world’s Fourth Largest Economy ™, is unable to make major infrastructure improvements.

The budget reserves, at least officially, are increased to $37.8 billion. Said Assembly Speaker Anthony Rendon (D-Lakewood), “This is a budget for the future. The Assembly has consistently fought for early childhood education and I’m proud that this budget includes up to $2.83 billion in one-time funds for child care reimbursement increases, all while protecting budget reserves of $37.8 billion.”

We’ll have to see if that number holds up. As I wrote in The Epoch Times article on Chapman University’s Economic Forecast, Newsom’s budget assumption is for revenues and transfers to increase 2 percent, when they actually might drop 6 percent. That will produce a $15 billion reduction in revenues. So much for the budget being “balanced.”

Proposition 98 funding for education will be $108.3 billion. That’s a cut of $18.9 billion from the $127.2 billion in the May Revision. For the state’s 5.4 million public-school students, that’s still $20,055 per student—a large number that should be producing excellence. Yet student performance has been declining in recent years from an already low base.

Conclusion: Budget Pain

I believe the Chapman Forecast is correct and the country is entering a recession, which will hammer the state budget. Chapman also is warning the exodus of so many Californians, especially wealthy taxpayers, will further erode state revenues.

We could end up with a situation similar to the fall of 2008, as the Great Recession dug in. Revenues fell off a cliff. By January 2009, Schwarzenegger signed a record tax increase, destroying not only his quixotic presidential aspirations, but a potential bid for the U.S. Senate. Yet as Rep. Tom McClintock (D-Calif.) pointed out shortly after, “The taxes were supposed to produce $13 billion in additional revenue. But after nine months, California’s sales tax collections are down $270 million; income tax collections are down $10 billion. The only major tax not raised—the corporate tax—is the only tax that’s producing more revenue—up about $2.4 billion in the same period.”

If that’s repeated, even Democrats might take notice of Newsom flubbing his state budget. As I have said numerous times, he missed an opportunity to use that $100 billion budget surplus in the previous budget to reform the state’s tax structure, which goes up and down like a dizzying rollercoaster, depending on the economic fortunes, in particular, of the Silicon Valley millionaires and billionaires.

That could come back to bite him and his ambitions for promotion as the balmy budget days of summer in California fade into the frigid winter of the primaries in New Hampshire, New York, and Michigan.

John Seiler’s email: writejohnseiler@gmail.com

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.