SACRAMENTO — California’s state budget has been awash in cash, as lawmakers this year enjoyed a $97.5 billion budget surplus — an excess amount that’s larger than the entire general-fund budgets of all but two states (New York and Texas). As a result, Gov. Gavin Newsom and his Democratic legislative colleagues have had the enviable task of playing Santa Claus and just showering money around.
“No other state in American history has ever experienced a surplus as large as this,” Newsom boasted at a press conference in May. He gave a few nods to the potential for a future recession. Nevertheless, he eagerly adjusted his spending plans upward as the state headed toward a gubernatorial race. It’s fun to have money to spend and a long wish list of programs — especially during election season.
“The massive surplus allows Mr. Newsom to sprinkle cash across the state,” the New York Times noted. These include “rebates for nearly all Californians to offset the effects of inflation … retention bonuses of up to $1,500 for health care workers; expanded health care, in particular for women seeking abortions; three months of free public transit; and record per-pupil school funding.” And that’s just the beginning of the latest spending frenzy.
In 2021, the governor enjoyed an also-significant $76-billion surplus. As the news site CALmatters reported, Newsom went on a “spending spree” in advance of a failed recall election: “He wants to spend $12 billion to house the homeless … $3.4 billion to expand preschool to all 4-year-olds … $1.5 billion cleaning up blight.” He just happened to make each announcement at a relevant location for a photo opportunity. Go figure.
But change is in the air. “Under our outlook,” the nonpartisan Legislative Analyst’s Office revealed this month, “the Legislature would face a budget problem of $24 billion in 2023-24.… The budget problem is mainly attributable to lower revenue estimates.” The LAO uses the word “problem” as a euphemism for “deficit,” in case you wondered. It urged the Legislature to squirrel away more money and pause or delay “recent augmentations” (i.e., spending plans).
In plain English: Poof. Now, the surplus is gone and California is facing a sizable budget deficit. The fun is over. A Politico story captured the weeping and gnashing of teeth in Sacramento, as Democratic leaders vowed to protect every penny of spending from the budget ax. None of this should have been a surprise, given that “warning signs have been flashing for months.” The publication pointed to long-obvious falling tax revenues and layoffs at Bay Area tech companies.
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Wild budget swings are nothing new in California thanks to our steeply progressive capital-gains-dependent budget. The state imposes such punishing tax levels on high income that the state Capitol is dependent on the billionaires its lefty lawmakers seem to despise. For the quarter century I’ve been here, lawmakers have discussed revamping that system to smooth out the boom-and-bust cycles — although some reform proposals really are just a means to further raise taxes.
There’s a reason the state and school districts swing back and forth between spending sprees and layoffs. But they can’t bring themselves to change it, largely because “punishing the rich” is a centerpiece of progressive ideology.
Lawmakers never can restrain themselves during boom cycles. The glistening billions pose an irresistible temptation. Former Gov. Jerry Brown would always trot out charts during his January and May budget releases showing that tough budget years outnumber flush ones. But even he increased the state budget 50 percent in his last terms. This new crowd largely skips the pretenses and just spends.
Brown faced the last major budget deficit ($27 billion) in 2011, which he handled in laudable and troubling ways. Regarding the former, he eliminated the state’s redevelopment agencies (local central planning fiefdoms that diverted funds from traditional public services) and instituted a modest but noteworthy pension-reform law (the Public Employees’ Pension Reform Act, PEPRA). But he also championed 2012’s Proposition 30 tax increase.
The only time California lawmakers ever seriously reform anything or reduce spending is when their backs are against the wall. Had California enjoyed a large surplus in 2012, lawmakers and the governor would have had no incentive to reform pensions or halt redevelopment. Sure, they also convinced gullible voters to raise other people’s taxes, but the Legislature always is pushing tax hikes.
Even in the midst of the recent budget fat times, the Legislature sought more tax revenue. The California Tax Foundation reported that during the 2021–2022 session, lawmakers sought nearly $199 billion in new taxes and fees. They seek higher taxes in good times and bad because, well, their appetite for taxing and spending is insatiable.
The good news is that tough economic times and dwindling budgets will force California’s leaders to make tough choices. It will also test Newsom’s mettle. He has possible designs on the presidency, so Americans can finally watch him do something other than spend free money.
The bad news, though, is that Newsom and his colleagues blew a historic opportunity to fix some of California’s long-standing infrastructure, tax, and debt problems. Instead, they largely squandered the surplus on dubious programs. Now, the money is gone — and it’s anyone’s guess whether we’ll get a similar opportunity again.
Steven Greenhut is Western region director for the R Street Institute. Write to him at email@example.com.