Legislative Analyst Confirms Newsom’s Budget Still Spending Too Much

California Gov. Gavin Newsom answers a reporter's question about his revised 2024-25 state budget during a news conference in Sacramento, Calif., on May 10, 2024. Rich Pedroncelli/AP Photo

Commentary

My recent assessment in The Epoch Times, “Gov. Newsom’s Revised Budget Still Doesn’t Add Up,” has been affirmed by the nonpartisan Legislative Analyst’s Office (LAO).

“The 2024‑25 Budget: Initial Comments on the Governor’s May Revision,” published May 17, clocked the state’s general-fund “budget problem”—Sacramento parlance for “deficit”—at $55 billion. That’s more than twice Gov. Gavin Newsom’s projected $27 billion.

“The difference is attributable to what our offices consider to be current law, particularly for school and community college spending,” the LAO found. “While we would maintain that our approach more accurately reflects current law, these scoring differences do not reflect substantive differences in our views of the state’s fiscal position.”

The key is Proposition 98, which voters passed in 1988. It mandates about 40 percent of all general-fund spending go to public education. The analysis found Mr. Newsom’s May Revision “assumes spending on schools and community colleges is reduced to the lower level each year and treats all of the corresponding spending adjustments as baseline changes.”

By contrast, the LAO’s approach does not assume the lower levels each year. Instead, it “calculates baseline school spending under current law”—that is, with no reductions. This is important because it’s unlikely the Legislature would go along with Mr. Newsom’s lower calculation. And if it did, the teachers’ unions well could sue the state for violating Prop. 98.

The LAO calculates the difference in the two approaches is “most evident in our treatment of the Governor’s proposal to ‘accrue’ the cost of $8.8 billion in prior-year payments to schools to future years.”

Instead of this accounting legerdemain, the LAO treats Mr. Newsom’s number “like a policy choice—one that has not yet occurred—because it would modify a law the Legislature adopted several years ago indicating the state would not reduce school spending in the prior year.”

The LAO also fingers another $6 billion “in other budget actions as solutions that the administration counts as baseline changes.” These and other changes add up to the $28 billion extra budget gap from Mr. Newsom’s May estimate.

However, the LAO’s “scoring differences do not reflect substantive differences in state’s fiscal position.” Instead, “we would maintain that our approach more accurately reflects current law.”

Basically, the LAO is saying the governor is twisting current law regarding the numbers to make the deficit look $28 billion less than it actually is. If a private company did this, the executives likely would get sued for securities fraud.

Mr. Patek did commend Mr. Newsom’s new budget in four areas:

• “First, in April, the Legislature passed an early action package that reduced the size of the budget problem by $17.3 billion.
• “Second, the administration reduced the total amount of new discretionary spending proposals by roughly $200 million (from $1.2 billion in January to about $1 billion).
• “Third, offsetting this, the administration’s revenue forecast eroded by roughly $12 billion. (As we discuss more later, our office’s revenue estimates are slightly lower than this.) This downgrade reflects weakness in recent collections across income, corporation, and sales taxes.
• “Fourth, some baseline costs are higher compared to January. For example, higher estimated caseload in the state’s Medi-Cal program results in about $2 billion in higher costs across the budget window.”

Adapting to Seiler’s Law

As in previous budget articles in The Epoch Times, I’ll use what former California Finance Director Tom Campbell called “Seiler’s Law” on the budget after I showed it to him almost two decades ago. It posits the state general fund cannot rise above 6.2 percent of personal income without the state getting into financial trouble.

The graph follows. It depends on data from Schedule 6 of Mr. Newsom’s January 10 budget proposal.

As you can see, whenever the general fund expenditures rise above the 6.2 percent Seiler’s Law limit, the state gets into fiscal trouble by spending too much, then runs deficits when the economy slows. That happened with the 1990 recession, the 2001 Dot-Com bust, the 2007 Subprime Meltdown, and today. Although we’re not in a recession yet, as both the governor and the LAO noted, tax receipts are down.

Budget Blindness

The Legislature now has the data it needs to craft a budget. Oh wait, it doesn’t. The last Annual Comprehensive Financial Report from the Controller Malia Cohen dropped March 15 this year for fiscal year 2021-22, which ended on June 30, 2022. That is, the data is almost two years old.

Former state Sen. John Moorlach (R-Costa Mesa) analyzed the tardiness in The Epoch Times with, “Long Overdue Financial Report for California Brings Bad News.” I served as his press secretary, and he currently is the director of the California Policy Center’s Center for Public Accountability. That allowed him finally to compile his annual ranking of state fiscal positions. He calculated California ranked 43rd of the 50 states, based on the Unrestricted Net Position, the key number showing fiscal health. In this state it’s negative: -$5,668 owed per person. Or -$22,672 for a family of four.

Worse, the recent practice of the Legislature is to pass a “budget” by the June 15 constitutional deadline, while leaving out important parts. Those parts are crafted as “trailer bills” later after weeks and months of haggling among the California Ciceros and the governor.

Every other state long ago filed its ACFR for fiscal year 2022-23, which ended on June 30, 2023, almost a year ago. California remains delinquent. Mr. Newsom and the Legislature working on a budget with incomplete numbers are the blind leading the blind into a fiscal ditch with 39 million Californians in the caboose.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.