It’s hard to believe I first started writing about California budgets in 1987, now 35 years ago.
That commonly meant wrangling going on long after the constitutional deadline of June 15 to pass a budget, especially under Republican Gov. Pete Wilson and the Democratic-majority legislature.
In 1999, much as today, the state was flush with surplus tax money from the dot-com boom. New Gov. Gray Davis and the four legislative leaders quickly came to an agreement on the budget numbers. The budget was passed a few minutes into June 16, technically over the deadline, prompting Davis to deadpan, “Close enough for government work.”
It could happen again. In 2022, the legislature passed a budget on June 14, supposedly a day early. But it left unnegotiated large elements of this $300 billion monstrosity, especially what tax rebate might be sent back to suffering drivers paying $7 and climbing at the pump. Close enough for government work!
It’s like buying a new Mercedes S550 and ending up with a used Yugo.
This time, at least, budget reserves have risen to $38 billion, largely due to Proposition 2 from 2014. Below is a graph from the ballot pamphlet that year, showing how quickly revenue from the PIT (personal income tax) can drop during recession years. Notice the 2001 dot-com bust and the 2007-09 Subprime Meltdown. For the latter, Gov. Arnold Schwarzenegger also had not prepared the state, going on a spending binge from 2005-07. That led to a record $13 billion in tax increases he signed in 2009, as well as major budget cuts.
But give Newsom credit where it’s due. Budget reserves probably could withstand a year of a recession, provided it’s not too severe. And he has insisted the surplus go to one-time expenditures. Although the teachers’ unions, as they have in the past, are going to be reluctant to give back their half of the money even during a recession. Last time, Schwarzenegger got the unions to agree to education budget cuts on the condition the money would be “backfilled” when good times returned, which is what happened after he left office.
Yet the Prop. 98 mandate that 40 percent of state funding go to schools remains in place. Shouldn’t it be adjusted downward as the population declines? The extra money could go to pay down the debt from the California State Teachers Retirement System.
The new report also boasted, “The valuation did not reflect the 27.19% investment return earned by CalSTRS in 2020–21. The historic returns of last year significantly improved projected funding levels. CalSTRS now expects the Defined Benefit Program to reach full funding prior to 2046 under current actuarial assumptions. The state’s share of the CalSTRS unfunded actuarial obligation is now projected to be eliminated by June 30, 2023.”
However, so far in calendar year 2022 the stock market is negative and seems to keep going downward. A recession clearly is here, severity unknown.