Skelton: Newsom’s wishful thinking California budget math doesn’t add up
Will governor ignore warnings and craft a fantasy budget that compounds problems down the road?
Gov. Gavin Newsom has sent the Legislature a proposed state budget that is unrealistic and spews red ink.
That’s essentially the straight-shooting opinion of the most trusted numbers-crunching outfit in Sacramento: the nonpartisan Legislative Analyst’s Office.
By law, the annual budget must be balanced. But “balanced” is a subjective characterization based on guesswork. Often it’s rooted in wishful thinking and fudged calculations.
The revised $307-billion budget proposal that Newsom recently submitted — known colloquially as the May Revision — is either too fat with spending or too thin on taxes, Legislative Analyst Gabriel Petek asserted.
Newsom and the Legislature need to fix one — or both — before the June 15 deadline for passing a budget. That means cutting programs or raising taxes — or a little of both.
“There is less than a one-in-six chance the state can afford the May Revision spending level across the five-year period,” the LAO cautioned. “This means that if the Legislature adopts the governor’s May Revision proposals, the state very likely will face more budget problems over the next few years.”
That would mean even deeper program cuts or steeper tax hikes in a state where tax rates already are among the highest — if not the highest — in the nation. That’s not exactly a good sales pitch for outside investment.
Newsom, however, denies this is a high-tax state for 99% of Californians and insists “I’m not a tax-and-spend liberal.”
In fact, he has flatly rejected — so far — an effort by Senate Democratic leaders to raise corporation taxes on net incomes exceeding $1.5 million.
“I do not think it’s the right time to raise taxes,” he said.
That presumably pleases most voters. But since he has rejected the lefties’ urge to tax and spend, he’d better practice some righty program cutting.
Newsom finds himself in an unaccustomed role. Budget trouble is a new predicament for him. Until now, he has been lucky enough to escape the politically risky dilemma that has confronted virtually every California governor for the past 64 years: the need to erase budget deficits, usually with higher taxes plus spending cuts.
Exactly one year ago, Newsom and the Legislature were basking in a $100-billion budget surplus.
Now, Newsom is projecting a deficit for the fiscal year starting July 1 of nearly $32 billion. The LAO pegs it a bit higher at close to $35 billion. Over the next four years, the analyst projects cumulative deficits of $52 billion.
How did the budget turn from black to red?
Inflation, rising interest rates, bank closures — all of that suppressed the economy, particularly the stock market, and resulted in reduced state tax revenues.
One culprit is California’s ultra-progressive state income tax that Newsom lauds. “Soak the rich” may be a popular concept, but it results in a very volatile tax system that leans too heavily on the wealthy. The top 1% of California earners pay nearly 50% of the state income tax. And when the economy staggers and falls, so do wealthy people’s capital gains and they pay less taxes.
Last year, the governor and Legislature agreed to temporary one-year spending that totals $28 billion. Newsom recently cut that back to $11 billion. The LAO recommends whittling it further to $4 billion.
The Legislature could dip into rainy-day reserves. But Newsom rejects that idea for now, theorizing the saved stash may be needed later. And the LAO agrees. But the Legislature may attempt to seize the easy money anyway. It always wants to spend more than the governor does.
The governor and Legislature can always ignore the LAO warnings and craft a fantasy budget that compounds the state’s problems down the road. That would be standard for Sacramento.
George Skelton is a Los Angeles Times columnist.