Walters: Newsom’s State of the State should be candid about California’s economy

Gov. Gavin Newsom postponed his annual State of the State address while awaiting the fate of his mental health ballot measure in this month’s election.

Whenever Newsom gets around to giving his appraisal of the state’s condition, he should curb his braggadocious tendencies and acknowledge that it faces what could be prolonged — even semi-permanent — economic sluggishness.

While Newsom was sweating out the vote count on Proposition 1, which prevailed by fewer than 30,000 votes, the federal Bureau of Labor Statistics was reporting that in February, California recorded the nation’s highest unemployment rate, with 5.3% of its labor force being jobless.

That unhappy statistic reflected a growing consensus that while the rest of the nation is enjoying a fairly vigorous recovery from the effects of the COVID-19 pandemic, California is lagging behind.

It’s a major factor in the state’s having an immense budget deficit, one that could last for years. Newsom’s budget planners and the Legislature’s budget analyst, Gabe Petek, both see annual deficits in the $30 billion range for the remainder of Newsom’s governorship.

“California entered a revenue and economic downturn last fiscal year,” Petek said in his analysis of Newsom’s 2024-25 budget. “State tax revenues fell 20 percent. The number of unemployed workers in California increased by 200,000. A key question for this budget is: to what extent and for how long will this downturn persist? The governor’s budget assumes a quick return to growth, projecting an 8 percent increase in tax revenues in the current fiscal year. While possible, we think this assumption is optimistic. Halfway through the current year, we are yet to see clear signs of such a rebound.”

In January, when the labor bureau conducted its annual revision of employment data, replacing previous estimates with hard numbers, it found that California’s picture was markedly darker than had been reported earlier.

For example, it had estimated that in the first half of 2023, the state had gained an average of 32,500 jobs each month, but in January revised that to an average loss of 400 jobs per month.

The Los Angeles Times performed its own analysis of California’s employment situation, reporting that between September 2022 and September ’23, the state’s jobs grew by a scant 15%, the lowest level of any state. Its employment growth was a tiny fraction of expansion in Texas and Florida, two states that Newsom often depicts as backward.

Californians know that something isn’t right. A recent poll by the Public Policy Institute of California found that “majorities of Californians think the state is headed in the wrong direction and predict bad economic times for the state economy in the next 12 months.”

The same poll also found that Newsom’s approval rating among Californians had dropped to 46%, which may partially explain why his ballot measure fared so poorly despite spending $15 million on the campaign.

California’s sluggish economy is also a factor in the state’s recent population losses, driven mostly by an outflow of people to other states with more vibrant economic prospects and lower living costs. Texas is the No. 1 destination for ex-Californians.

“About one in four lower-income residents say that the lack of well-paying jobs in their region is making them seriously consider moving out of the state,” the PPIC poll found.

When he finally delivers his State of the State address, Newsom will be tempted to ignore these troubling signs and depict a state that’s a global trendsetter, but such a head-in-the-sand attitude will erode his standing among Californians even more.

The time for bragging has passed. The time for humility and candor has arrived.

Dan Walters is a CalMatters columnist.