Patterico's Pontifications

1/11/2024

Another Budget Fiasco in the Golden State

Filed under: General — JVW @ 6:55 am



[guest post by JVW]

The incomparable Dan Walters, the dean of Sacramento reporters who has been covering the scene at the state capital for over 60 years now, reports that our mono-party government is once again playing fast and loose with the budget. And it’s really revolting what they plan to bamboozle the taxpayer with:

There’s an old adage that one must first acknowledge a problem exists before it can be addressed. It bears repeating because of a huge disagreement over the size of California’s state budget deficit.

In December, the Legislature’s independent budget analyst said the state faces a $68 billion deficit, mostly due to revenue shortfalls in the 2022-23 and 2023-24 budgets, and projections into 2024-25.

On Wednesday, Gov. Gavin Newsom introduced a 2024-25 budget that assumes a $37.9 billion deficit, while chiding news media for repeating analyst Gabe Petek’s projection, saying they are undermining confidence in the state’s economic resilience.

Were Petek’s figure valid, the state would have to make huge adjustments in spending and perhaps entertain tax increases to balance the budget.

Newsom’s much lower number, however, allows him to cover it with an array of budgetary gimmicks often used in the past, such as borrowing money from special funds, tapping reserves and delaying some budgeted expenditures.

The difference between Greasy Gavin’s numbers and those from the budget analyst is about half due to discrepancies in revenue projections, and half due to discrepancies in estimated spending obligations. It will come as no surprise that the gelatinous governor’s projections are self-servingly bullish, and probably unrealistic. Dan Walters explains:

Estimating income and outgo as many as 18 months into the future is not an exact science, and California has a sorry history of making huge errors in its budgets, largely because the state has a very lopsided dependence on taxing the state’s wealthiest residents. Their incomes, especially earnings on investments, tend to make wide swings from year to year. It’s called “volatility” and Newsom cites it as the chief factor in forecasting revenues.

Jerry Brown warned the state for years that counting on the California’s wealthiest residents to keep the budget in alignment is a recipe for disaster, but cowardly and craven Democrats (Republicans have had zero say on budgetary matters for the past 12 years) refuse to back away from the Marxist ideal of “from each according to his ability, to each according to his need,” which thus places us on the revenue roller-coaster. And while flaky old Governor Moonbeam issued stern warnings out of one side of his mouth, the other side of his mouth was heralding increases in state spending which have now reached unsustainable levels, setting a pattern that his successor has been happy to continue. Happy-talk forecasts of high-yields in tax revenue are tossed about, and, more often than not, baked into the final budget cobbled together by the legislature and governor. Last year’s official state budget estimated that the final six months of 2023 would see the state take in $123.3 billion in revenue; the actual number according to the controller turned out to be $93.3 billion. See how easy it is for the Golden State budget to get out of whack?

Dan Walters points out that throughout his long history covering California the budget analyst’s office has traditionally come up with much more accurate estimates than the governor’s office has, irrespective of which party happened to be occupying the corner office in Sacramento. So it goes without saying that their forecasted $68 billion deficit looming in 2024-25 is probably closer to the mark than anything that will emerge from Team Gavin. A deficit of that magnitude can’t be papered over with the usual tricks such as delayed payments, questionable account transfers, and raiding the state’s vaunted rainy-day fund. It will instead require some unpalatable bromide of tax increases and spending cuts designed to enrage all constituencies and interest groups. And if the rich keep fleeing the state for lower-tax domiciles, this is all only going to get worse.

Those of you who were in California in the early part of this millennium (and those of you outside of the state who were interested in our goings-on) may recall that former governor Gray Davis found himself in the same situation right around this time of year twenty-two winters ago. He too chose to run with a ridiculously lowball estimate of the looming deficit in order to avoid having to seek reelection mere months after having raised taxes and cut services. When, as everyone foresaw, actual state expenditures dwarfed revenue by a sum far more considerable than the Davis Administration had estimated, the newly reelected governor immediately announced an increase in the vehicle tax paid by all California auto owners to help plug the hole. This was the opening salvo which led to Gray Davis’s recall just ten months later. Gavin Newsom will deserve the same fate for playing the same stupid games.

– JVW


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