California lawmakers’ adviser tries tough budget love on deficits

from Dan WaltersCalMatters

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Since 1941, the California Legislature has had an independent budget adviser to monitor the ebb and flow of state finances — especially the governor’s budget — and suggest ways they can be improved.

Traditionally, the Legislative Analyst’s Office has ignored politics and delivered its advice in neutral—even boring—language, implicitly telling policymakers that they are free to accept or reject its findings, but at least they cannot claim ignorance.

But recently, legislative analyst Gabe Petek, just the sixth person to hold the post in the past 85 years, took a more strident tone, warning Gov. Gavin Newsom and lawmakers that they must close their chronic billion-dollar deficits.

In the past four years — when Newsom announced that the state has A $97.5 billion surplus that turned out to be an illusion based on a flawed revenue forecast — he and lawmakers have overspent revenue, creating $125 billion in deficits that were taped with paper with loans on and off the books, deferrals and creative accounting, such as moving government salaries from one fiscal year to another.

Petek’s latest warning reportreleased this week, fleshed out the language even further, detailing how general fund spending has increased by more than $100 billion a year, outpacing revenue, since 2019, the year Newsom took office.

“Both our office and the administration have estimated that the state faces structural deficits ranging from $20 billion to $30 billion annually,” Petek reiterated. “While recent revenue gains—led by a strong stock market and investor enthusiasm around artificial intelligence—have bolstered the state’s short-term budget picture, long-term imbalances are likely to persist without significant policy changes.”

This passage may be aimed at indications that policymakers may be counting on another expansionary revenue forecast, but 2022, to delay the day of reckoning.

Newsom has promised that his revised budget will not only close the current gap between revenue and spending, but also ensure that his successor will not be left with a budget running out of red ink.

Newsom recently told Democratic lawmakers, “My duty is also to have the back of the next governor and the next legislature.” according to Politicoadding that he will do whatever it takes to balance the budget, including spending cuts, but remains opposed to new taxes.

Petek says most of the increased spending since 2019 is essentially automatic, driven by cost-of-living adjustments, healthcare workloads and social services and, in education, formulas locked into the state constitution.

However, a significant portion is what officials call “discretionary,” meaning it is not required by current law. “In retrospect, the state cannot afford to maintain its existing services while funding the chosen package of expansions and new programs under the same tax revenue structure,” Petek says.

The analyst characterized his new report as “a first step in making fiscally sound, evidence-based policy decisions” and told policymakers that “they will have to make tough budget decisions in the years ahead. Short-term revenue gains may temporarily mask structural imbalances, but in the coming years the fiscal realities are likely to be unassailable. Addressing budget gaps will require sustained and consistent action — by raising revenue, cutting spending, or possibly both.”

So how about a tax increase?

Some legislative leaders have proposed raising taxes, possibly on corporations, not only to cover chronic deficits but also to offset cuts in federal support. Since Newsom is generally opposed to that option, Petek warns that “eliminating deficits through tax increases alone would require significantly more new revenue than the deficit itself — potentially $30 to $60 billion a year,” noting that education automatically requires 40 to 50 cents of every new dollar of revenue.

We’ll see if Petek’s tough love advice finally gets Newsom and lawmakers to pull their heads out of the sand.

This article was originally published on CalMatters and is republished under Creative Commons Attribution-NonCommercial-No Derivatives license.