On Monday Jan. 6 in Stanislaus County, Gov. Gavin Newsom previewed “a balanced budget and key investments maintained for the upcoming fiscal year,” 2025-26, which begins on July 1. That contrasted with the previous year’s budget, which began with a $73 billion deficit. The next day, Tuesday Jan. 7, the Pacific Palisades wildfire ignited at about 10:30 am.
On Friday Jan. 10, the governor’s official budget-proposal document was released, its numbers already incinerated. Going by those pre-wildfire numbers, on Jan. 13 the Legislative Analyst’s Office affirmed the budget was “roughly balanced.”
Californians still are coming to terms with the immensity of the loss of life and property in the wildfires. But a budget still must be written, taxes collected and money spent. And the cost to the state of California immediately throws out of balance the Jan. 10 budget numbers. How much? The LAO conceded, “While we anticipate some state costs as well as state policy responses to this disaster, we do not yet have sufficient information about the extent of those costs.”
We can expect budget expenses will be in the tens of billions of dollars. Revenues will be lost because taxes will no longer be collected from homes and businesses that no longer exist. The underlying property will remain valuable. This still is California, not Detroit. But a $4 million home might mean a property of $3 million and a structure of $1 million. With the structure gone, taxable equity will be reduced by $1 million until it’s replaced.
Despite the governor’s enthusiasm on Jan. 6 for his pre-wildfire budget, the numbers show it already suffered many problems. Two decades ago in the Orange County Register I noticed how, when state spending rises above 6.2% of personal income for the general fund, the state inevitably falls into a fiscal crisis. The numbers are tallied in Appendix Schedule 6 of each year’s budget proposal.
For example, from fiscal 2004-05 to 2006-07, Gov. Arnold Schwarzenegger, despite claiming to be a budget hawk, increased spending from $79.8 billion to $101.4 billion. That was a whopping 27% increase in just two years. The percentage of personal income jumped from a prudent 6.04% to an irresponsible 6.76%, well above my 6.2% threshold. When the Great Recession hit, revenues crashed and in 2009 he signed into law a record $13 billion tax increase.
Coming into office in 2011 through 2009, Gov. Jerry Brown maintained sensible budgets for eight years, averaging 5.42%, well below 6.2%. Newsom started out frugal, at 5.56% in 2019-20 and 5.87% the next year. Then he goosed it to 7.21% in 2021-22. OK, that was the COVID year. But it stayed high, 6.49% in 2021-22; 6.56% in 2022-23; and 6.87% for 2023-24. No wonder the deficit ran up to $73 billion.
For his new budget, it came down a bit, to 6.5%, but still above the 6.2% threshold. Then the wildfires blazed. That shows the irresponsibility of keeping spending as high as Newsom has because there’s no slack, as under Brown’s budgets. Now the number will rise higher than 6.5%, bringing inevitable calls for tax increases. And because Republicans remain a superminority – less than two-thirds – in both houses of the Legislature, Democrats can pass a tax increase on their own, with no input from the GOP.
Schedule 6 includes another crucial number: state employees per 1,000 population. Brown reduced the number from 10.0 in spendthrift Schwarzenegger’s last year to an average of 9.26 over eight years. Newsom pushed that up to 11.1 in both 2024-25 and 2025-26. That’s a huge 20% increase in state government employees per capita under Newsom.
Prudent families and businesses save for contingencies, such as replacing the SUV’s broken transmission or kids needing orthodontics. Sensible governments also limit expenses to anticipate paying for unexpected events, especially natural disasters. Wildfires, earthquakes and hurricanes are not rare in the Golden State.
Like Schwarzenegger before the Great Recession, but unlike frugal Jerry Brown, Gavin Newsom has not prepared the state fiscally to cope with emergencies. After the embers die out the bill will be due for reconstruction and must be paid.
John Seiler is a member of the SCNG Editorial Board