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With California’s Wall Street-driven revenue yo-yoing with a volatility more akin to an oil-dependent petro state than a modern industrial democracy, the reactions of its governors to down cycles are deeply instructive. There’s Jerry Brown, the iconoclastic four-term Democrat who not only refused to downplay bad news, he liked to force others to confront it. In 2012, in making the case for temporary tax hikes to avoid massive mid-school year budget cuts, Brown framed it as a binary choice akin to the one offered by National Lampoon in an infamous photo and headline on the cover of its January 1973 issue: “If You Don’t Buy This Magazine, We’ll Kill This Dog.” The tactic worked.
Then there are all other modern governors, the sugarcoaters who doubt residents can handle the truth. On Wednesday, facing his first fiscal nightmare since winning the job in 2018, Gavin Newsom joined the club as he debuted his 2024-25 budget.
With revenue plunging throughout last year because rich Californians weren’t enjoying the vast capital gains increases seen after the pandemic hit, the Capitol was on edge over how much pain loomed. Lawmakers, staffers and lobbyists got the bad news last month when the state Legislative Analyst’s Office — among the most respected institutions in Sacramento — projected a $68 billion deficit for the state because revenue didn’t meet budgeted forecasts in fiscal 2022-23 and 2023-24 and was very unlikely to do so in 2024-25.
But Newsom not only said that estimate was more than $30 billion too high, CALmatters reported he was critical of news outlets for accepting as accurate the LAO’s forecast of continuing state shortfalls. This blame-the-messenger shtick on revenue and the economy represents a 180-degree reversal from the Newsom who repeatedly told editorial boards in 2018 he would be a relentless truth-teller in taking on California’s problems.
The governor proposed to cover the $37.9 billion in red ink he anticipates with an 11 percent, $5.7 billion reduction in the state’s multiyear climate mitigation efforts; with a delay in implementing approved pay hikes for some 400,000 health care workers; and with a vintage Sacramento trick of delaying the last state employee paycheck for fiscal 2024-25 until the first day of fiscal 2025-26. But because Newsom almost entirely kept school spending intact and because he ruled out scaling back his signature new spending commitments — free health insurance for all low-income adults irrespective of immigration status and free kindergarten for all 4-year-olds — this won’t come close to balancing the books. So he wants to use an unprecedented $13.1 billion in state rainy day funds to allow the state to make a paper case that its $292 billion budget adds up. That such funds are supposed to be used only during actual emergencies — deep recessions or wrenching national disasters, for example — mostly won’t be brought up. Sacramento overwhelmingly prefers the exit route that Newsom offers to having to make a series of painful spending decisions.
Yet for this approach to work without causing huge hangovers down the road, there need to be future revenue booms to make up for lean years. Counting on that to keep happening in perpetuity is no basis for sound government financial planning. And doing so when perhaps California’s most distinguished futurist, Joel Kotkin, has joined those who believes Silicon Valley has peaked as the state’s dominant economic engine is particularly risky. The hard truth: At some point, the state’s century-long winning streak is going to end.
Gov. Brown would be willing to bring this up. There need to be many more with this view in the Capitol. If not, lawmakers’ happy talk could both disguise and hasten the end of the Golden State’s golden era.
