ARTICLE
What a difference six months means and how things have changed in California! Just six months ago in June 2022, California Governor Gavin Newsom and the California State Legislature were celebrating the signing of the largest state budget (over $304 billion and a surplus of nearly $100 billion) which lined up new spending programs addressing areas that had received short falls for many years. In the months leading up to the signing of the 2022-2023 budget negotiations dragged on for weeks as they (the Governor and the Democratic controlled legislature) deliberated over how to spend the massive windfall. Ultimately they agreed to expand the social safety net to more undocumented immigrants, create a new court system to compel some homeless and severely mentally ill people into treatment, and provide refunds to most taxpayers in the state. As a precaution, in the 2022-2023 budget (which is tied to the volatility of the steep rise and fall of state income taxes) many of the appropriations were one-time allotments or funding increases that would only take effect in future years if revenue estimates held up — commitments that are now at the greatest risk as the state puzzles over how to balance its books. According to news reports at the Governor’s press briefing on Tuesday, the Governor insisted the “we’re keeping promises,” in releasing the 2023-2024 state budget as a $297 billon spending plan that is 3.6% smaller than last year’s budget. Let's do some rough back-of-the-napkin-math. The massive 2023-2034 ($304 billion state budget) is estimated to have a $22.5 billion deficit. Simple math shows the 2023-2024 proposed budget should fall around $281 billion (rounding error included), hich is a $16 billion difference (297-22). Regardless of what dollar number is used in the proposed state spending plan, the Governor intends to keep his ‘big promises' despite the modest shortfall. The shortfall as analyzed by the State Legislative Analyst Office (LAO) in November 2022 would not prevent the state from fulfilling its commitment to education, transportation and climate programs. Further noted was his commitment to these programs. Newsom said the state would not tap into cash reserves to address the deficit. The Governor proposed to delay $7.4 billion in spending to future budgets and shift $4.3 billion in appropriations to other sources, such as construction projects on California State University campuses. The budget plan would also enact $5.7 billion in reductions for previously funded programs with another $3.9 billion “trigger” cuts that could be reversed next year if the state has enough money. Those programs are largely concentrated on climate and transportation: Zero-emission vehicle credits and infrastructure programs are set to receive $2.5 billion less from the general fund in the coming years, with about half of those reductions offset with money from fees on major greenhouse gas emitters. The plan proposes to pull back $2 billion from local rail projects and $350 million from housing programs. When asked by reporters: “Why climate and transportation?” Newsom responded “because of the magnitudes of those budgets,” Newsom said. Now the proposed budget spending plan will be handed off to the state legislature for consideration where Assembly Speaker Anthony Rendon stated, “I look forward to working with my Assembly colleagues, the Senate, and the Governor on a 2023 budget that protects classroom, child care, and university funding while safeguarding core programs that protect our environment and our most vulnerable residents.” Those discussions between the state legislative leaders should also include Assemblymember Robert Rivas who is set to take the Speaker Gavel after the June budget is formally adopted by the legislature and signed by the Governor. We know that the minority party in Sacramento led by Assembly Republican leader, James Gallagher has blamed the deficit on Democrats wasting funds on new social programs and other ‘pork’ projects. Assembly Budget Committee Republican Vince Fong said in a statement. “Newsom’s budget again fails to adequately build water storage and conveyance infrastructure to store water and move it across the state.” It doesn’t matter as the voiceless minority party can only make damaging public statements that go nowhere in the legislative process. There will be the traditional pause in activity from the Legislature until the state income taxes are collected in the spring and the budget is re-evaluated in what is called “the May Revise” comparing the proposed January spending plan in real dollars. We know that the state’s financial position has shifted dramatically because the state is so dependent on tax revenue from our highest income earners, which means that when the stock market dips, so do the state’s budget prospects. The question for the State Legislature and all Californians is: Will the recent string of layoff notices — most notably in the tech sector — continue to grow into the next two quarters of 2023? As the layoff notices continue with precautionary concern about a potential recession, will California be financially primed for meeting our educational, environmental, infrastructure and public health and safety needs? Keep a close eye on employment and economic reports during the next few months as signals that we are on pace or falling behind.
What a difference six months means and how things have changed in California! Just six months ago in June 2022, California Governor Gavin Newsom and the California State Legislature were celebrating the signing of the largest state budget (over $304 billion and a surplus of nearly $100 billion) which lined up new spending programs addressing areas that had received short falls for many years. In the months leading up to the signing of the 2022-2023 budget negotiations dragged on for weeks as they (the Governor and the Democratic controlled legislature) deliberated over how to spend the massive windfall. Ultimately they agreed to expand the social safety net to more undocumented immigrants, create a new court system to compel some homeless and severely mentally ill people into treatment, and provide refunds to most taxpayers in the state.
As a precaution, in the 2022-2023 budget (which is tied to the volatility of the steep rise and fall of state income taxes) many of the appropriations were one-time allotments or funding increases that would only take effect in future years if revenue estimates held up — commitments that are now at the greatest risk as the state puzzles over how to balance its books.
According to news reports at the Governor’s press briefing on Tuesday, the Governor insisted the “we’re keeping promises,” in releasing the 2023-2024 state budget as a $297 billon spending plan that is 3.6% smaller than last year’s budget. Let's do some rough back-of-the-napkin-math. The massive 2023-2034 ($304 billion state budget) is estimated to have a $22.5 billion deficit. Simple math shows the 2023-2024 proposed budget should fall around $281 billion (rounding error included), hich is a $16 billion difference (297-22). Regardless of what dollar number is used in the proposed state spending plan, the Governor intends to keep his ‘big promises' despite the modest shortfall. The shortfall as analyzed by the State Legislative Analyst Office (LAO) in November 2022 would not prevent the state from fulfilling its commitment to education, transportation and climate programs.
Further noted was his commitment to these programs. Newsom said the state would not tap into cash reserves to address the deficit. The Governor proposed to delay $7.4 billion in spending to future budgets and shift $4.3 billion in appropriations to other sources, such as construction projects on California State University campuses. The budget plan would also enact $5.7 billion in reductions for previously funded programs with another $3.9 billion “trigger” cuts that could be reversed next year if the state has enough money.
Those programs are largely concentrated on climate and transportation: Zero-emission vehicle credits and infrastructure programs are set to receive $2.5 billion less from the general fund in the coming years, with about half of those reductions offset with money from fees on major greenhouse gas emitters. The plan proposes to pull back $2 billion from local rail projects and $350 million from housing programs. When asked by reporters: “Why climate and transportation?” Newsom responded “because of the magnitudes of those budgets,” Newsom said.
Now the proposed budget spending plan will be handed off to the state legislature for consideration where Assembly Speaker Anthony Rendon stated, “I look forward to working with my Assembly colleagues, the Senate, and the Governor on a 2023 budget that protects classroom, child care, and university funding while safeguarding core programs that protect our environment and our most vulnerable residents.” Those discussions between the state legislative leaders should also include Assemblymember Robert Rivas who is set to take the Speaker Gavel after the June budget is formally adopted by the legislature and signed by the Governor.
We know that the minority party in Sacramento led by Assembly Republican leader, James Gallagher has blamed the deficit on Democrats wasting funds on new social programs and other ‘pork’ projects. Assembly Budget Committee Republican Vince Fong said in a statement. “Newsom’s budget again fails to adequately build water storage and conveyance infrastructure to store water and move it across the state.”
It doesn’t matter as the voiceless minority party can only make damaging public statements that go nowhere in the legislative process.
There will be the traditional pause in activity from the Legislature until the state income taxes are collected in the spring and the budget is re-evaluated in what is called “the May Revise” comparing the proposed January spending plan in real dollars. We know that the state’s financial position has shifted dramatically because the state is so dependent on tax revenue from our highest income earners, which means that when the stock market dips, so do the state’s budget prospects.
The question for the State Legislature and all Californians is: Will the recent string of layoff notices — most notably in the tech sector — continue to grow into the next two quarters of 2023? As the layoff notices continue with precautionary concern about a potential recession, will California be financially primed for meeting our educational, environmental, infrastructure and public health and safety needs? Keep a close eye on employment and economic reports during the next few months as signals that we are on pace or falling behind.