Gov. Newsom’s Fantasy Budget

California Gov. Gavin Newsom speaks with reporters at a VA facility in Brentwood, Calif., on Nov, 10, 2021. (John Fredricks/The Epoch Times)

Commentary

Gov. Gavin Newsom’s new budget proposal (pdf) for fiscal year 2023-24, which begins on July 1, is more a wish list than an actual budget proposal. It projects $297 billion in spending, but also anticipates a $22.5 billion deficit unless certain programs are cut or delayed.

But one of the things former state Sen. John Moorlach, a Certified Public Accountant, has stressed for three decades is the real government numbers are in the Annual Comprehensive Financial Report, an actual audit. Too bad Betty Yee, the controller who just left office, completed her last one only for fiscal year 2019-20, which ended on June 30, 2020—going on three years ago.

Another reason this is Budget Disneyland is the Legislature now gets around the requirement in the California Constitution to enact a budget by June 15, or have their pay withheld. They just enact a placeholder budget, then spend a couple more months enacting trailer bills with the real numbers—or at least semi-real numbers.

Debt Paydown

On the positive side of Newsom’s budget, he includes no new taxes and doesn’t touch the Rainy Day funds. He writes:

The Budget reflects $35.6 billion in total budgetary reserves. These reserves include $22.4 billion in the Budget Stabilization Account, which fulfills the constitutional maximum mandatory deposit limit of 10 percent of General Fund tax proceeds. The reserve total also includes:

• $8.5 billion in the Public School System Stabilization Account,
• $900 million in the Safety Net Reserve, and
• $3.8 billion in the state’s operating reserve—the Special Fund for Economic Uncertainties.

It’s taken the state a long time to fill these coffers, which are supposed to be used only in a severe recession, such as 2007-10. In particular, Gov. Jerry Brown pushed into law Proposition 2 in 2014, which set up the Budget Stabilization Account, and required a partial paydown of state debts for retiree health and pension benefits.

Newsom writes: “The Budget accelerates the paydown of state retirement liabilities as required by Proposition 2, with $1.9 billion in additional payments in 2023-24 and approximately $5.3 billion projected to be paid over the next three years.”

Similar payments were made last year. But the tragedy was most or even all the nearly $100 billion budget surplus should have gone to pay down those debts.

Because of the “California Rule,” under which union contracts must be paid no matter what, shortfalls in the state benefits funds must be made up from the general fund. Here are the amounts to be paid from this proposal:

• $8.5 billion for CalPERS—the California Public Employees Retirement System.
• $3.9 billion for CalSTRS—the California State Teachers Retirement System.
• $390 million for state health care benefits.

Combined, that comes to $12.8 billion. Each of those amounts has doubled the past decade. That money could have gone to other programs—or be refunded to taxpayers.

Closing the Deficit

Newsom estimates a budget deficit of $22.5 billion. Which is close to the $24 billion from the Legislative Analyst’s Office. He proposes cutting or delaying various programs. This is where the supermajority Democrats in the Legislature may have other ideas. He may wish Republicans controlled one third of the seats to provide some leverage on spending restraint.

But he has learned from Brown, under whom he served as lieutenant governor for eight years. Brown avoided the overspending in good times that sank Gov. Gray Davis and Gov. Arnold Schwarzenegger. Instead, Brown used surpluses to fund one time or temporary programs that could be cut or delayed.

For example, Newsom proposes pushing the funding of 20,000 subsidized child-care slots from 2023-24 to 2024-25. The funding of food assistance for “all income-eligible noncitizens 55 years of age or older” is delayed to Jan. 1, 2027.

And although there’s no dollar amount, he writes, “No state has invested more than California in these humanitarian efforts. However, California cannot continue to fund these efforts at scale without significant support from Congress.”

Guess who gets the blame? Congress and its new Republican majority in the House, which favors immigration control. “The federal government is responsible for immigration policies and processing, and Congress must invest in policies and sustainable infrastructure that ensures the right to asylum for those fleeing violence and persecution while supporting their safe passage through border regions and onto their destinations within the U.S.”

Education Fully Funded

The budget does not scrimp on education. Which of course has its own initiative, Proposition 98, mandating 40 percent of general funding for K-12 education. Brown writes:

The Budget includes total funding of $128.5 billion ($78.7 billion General Fund and $49.8 billion other funds) for all K-12 education programs. K-12 per-pupil funding totals $17,519 Proposition 98 General Fund—its highest level ever—and $23,723 per pupil when accounting for all funding sources.

That’s not a typo: $23,723 per pupil. Or $593,075 for a class of 25.

Contrast that with tuition in a well-known private school in Orange County, Mater Dei High School, known nationally for its academic program, as well as for its football and other sports programs: Catholic Tuition: $17,400. Non-Catholic Tuition: $18,850.

Recession’s Effect

The main unknown is the depth of the recession. Most economists are saying it will be mild. But one never knows. If it’s mild, revenues could clock higher than anticipated, letting Newsom restore some of the budget cuts by the time of the May Revision. If the slump is worse than expected, it’s going to be hard for Newsom to dampen demands in his own party for tax increases—just before he readies a potential bid for the White House.

Meanwhile, the good news is I got my Middle Class Tax Refund debit card in the mail just before writing this. It’s what Newsom calls the California Way. But one thing is for sure: There won’t be a refund next year.

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