Reality Check: Is CA’s Budget Balanced As Leaders Claim?

from Dan WaltersCalMatters

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An accurate description of a country’s financial position depends largely on one’s definitions of “balanced” and “deficit.”

Governor Gavin Newsom and legislative leaders describe the 2026-27 budget they negotiated as a “balanced spending plan with zero deficit”.

The basis for that claim is that the pool of money they propose to spend in the fiscal year that begins Wednesday would be covered by tax revenue during the year — plus transfers from emergency reserves and off-reference borrowing, such as delaying the payment of $3.9 billion in constitutionally required state aid to schools and community colleges.

in fact, budget of $351 billion and its $251 billion general fund will spend up to $20 billion more than the state expects to receive in revenue in the fiscal year.

The difference is the real deficit, as the Legislature’s nonpartisan budget analyst Gabe Petek sees it — and as common sense dictates. In his review of the revised budget Newsom published in May, Petek said, “Despite the current revenue boom, the state now faces a structural budget imbalance — meaning that current revenues are insufficient to support current expenditures.”

Newsom and lawmakers have been overspending revenue for the past four years since he announced that the state had a surplus of $97.5 billionbased on what the administration later admitted was a $165 billion error in forecasting future revenue.

The spurious surplus caused a sharp increase in spending, which has since outstripped revenue. Ahead of this year’s budget process, Petek pegged the total overspending at $125 billion starting in 2022, covered by what he described as a “wall of debt.”

Newsom promised that its final budget not only will he close the chronic deficit, but he will leave his successor – possibly Xavier Becerra – with a healthy fiscal position. Not only did the budget not close the current deficit, but Jason Sisney, the Assembly’s budget adviser, projects an operating deficit to continue through the next governor’s first four-year term, albeit reduced by 2029-30 to $8.4 billion.

If that happens, it means the “debt wall” could easily exceed $150 billion by then.

Petek has repeatedly warned Newsom and legislative leaders that years of deficit spending leave California ill-equipped to deal with revenue declines because it is heavily reliant on taxing the state’s highest-earning residents, particularly the fruits of their stock market investments and other assets.

“Periods of increased revenue, such as the current cycle of strong personal income tax receipts, are typically when the state needs to strengthen its fiscal position,” Petek said in his May Newsom Budget Review. “Instead, the May revision cuts it — relying on roughly $20 billion in withdrawals from reserves and suspended deposits, as well as $4 billion in borrowing (on top of tens of billions of dollars in existing borrowing) to balance the budget.”

“These actions should be reserved for addressing revenue shortfalls in downturns, not for balancing the budget during revenue booms.”

Unfortunately, Newsom and legislative leaders ignored that advice in crafting the final budget — one that increases spending over May’s budget by another $5 billion, reversing many of the cuts to health care and welfare programs that Newsom’s budget contained.

The budget represents a double failure of the political leadership of the state. Both the practice of overspending revenues and covering them with more debt continues. He devalues ​​the language by claiming to have balanced a very unbalanced budget.

Unfortunately, much of the state-run political media tended to repeat politicians’ false claims rather than take Petek’s far more realistic view of the state’s highly unbalanced finances, and thus were complicit in the fraud.

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