California’s state finances just keep getting worse as Gov. Gavin Newsom and state legislators begin crafting their budget for fiscal year 2024-25, which begins on July 1. One problem is disagreement on the enormity of the budget shortfall. Newsom still insists it’s the $38 billion from his Jan. 10 budget proposal. But the Legislative Analyst raised the ante to $73 billion.
On March 25 Politico pointed out another problem: This is the first budget negotiation for Assembly Speaker Robert Rivas, D-Salinas, since he took up that job last June 30 and for Senate President pro tem Mike McGuire, D-Healdsburg, who got promoted Feb. 6.
Another problem is the state doesn’t have the most recent data on its actual finances. A budget is just a plan for the future. The government’s actual financial situation can be judged only by an audit, called the Annual Comprehensive Financial Report. But the latest one, released by Controller Malia Cohen on March 15, only was for the fiscal year ending June 30, 2022. That’s the fifth year in a row it was late. Every other state already has filed its ACFR for the following fiscal year, 2022-23.
“You have to get your income taxes done by April 15, so the state should be able to get its ACFR done on time,” John Moorlach told us; the former state senator currently is the director of California Policy Center’s Center for Public Accountability. The unrestricted net deficit, the key audit number, jumped to $222 billion from $174 billion the prior year. According to his calculations, only two other states’ bottom lines also got worse, South Carolina and Alaska, while 47 states improved.
He pointed out the deficit increased $48 billion despite general prosperity, plus $15 billion in federal cash from the Coronavirus Aid, Relief, and Economic Act and $43 billion from the American Rescue Plan Act of 2021.
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If the economy continues slowing, Moorlach said county budgets should be OK because they depend on largely stable property-tax revenues. Cities revenues vary, but could be harmed if they rely too much on sales taxes that might decline. The big problem will be for school-district budgets. They depend on Proposition 98 funds from the state, about 40% of revenues. Lower revenues mean cuts. They’re already starting. Anaheim Union High School District’s trustees recently voted potentially to slash 100 teaching positions.
This is what happens when an irresponsible governor and Legislature go on spending binges. According to Schedule 6 in Mr. Newsom’s budget proposal, the general fund’s percentage of the state’s personal income rose from 5.58% in Gov. Jerry Brown’s last budget year, 2018-19, to 7.34 percent in 2023-24. That’s enormous. Every Brown budget was well below 6%.
What’s next? Politico reported March 22 Newsom and legislative leaders already have agreed to up to $18 billion in reductions, “without specifying details.” They better not raise taxes, which already are so high they’re clubbing out the wealthy taxpayers who pay most of the levies. The reality is much deeper cuts must be made. The binge must be followed by the purge.