This is how Newsom’s spending creates chronic deficits

from Dan WaltersCalMatters

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A trove of charts buried in the fine print of the state budget, unknown to all but a few fiscal geeks, detail what revenue California has raised and spent over the past half century.

The current rankings in Gov. Gavin Newsom proposed budget for 2026-27 reveal how spending has soared during his administration, far outstripping stagnant population growth, inflation and even strong revenue growth.

The result, according to both Newsom’s Treasury Department and the Legislative Analyst’s Office, is a multi-billion “structural deficit,” meaning the revenue cannot cover the spending enacted by Newsom and the Legislature.

“Both our office and the administration expect the state to face multi-year deficits, with estimates ranging from $20 billion to $35 billion annually,” legislative analyst Gabe Petek said in his review of the proposed budget.

“These deficits are troubling for three reasons. First, after four years of projected deficits and a total of $125 billion in budget issues resolved so far, the state’s negative fiscal situation is already chronic.

“Second, structural deficits have grown—our November outlook is the most negative outlook for the budget position since the pandemic. Finally, deficits persist even as the economy and state revenues grow, underscoring that the problem is structural, not cyclical. Taken together, these trends raise serious concerns about the state’s fiscal sustainability.”

The historic budget charts are important because they support Petek’s warning about the deficit and undermine the temptation for policymakers to shift the blame to economic conditions, emergencies like the Los Angeles wildfires or President Donald Trump’s cuts in federal aid.

There it is what a diagram reveals:

In the seven budgets Newsom has signed starting in 2019-20, and the eighth he has proposed, revenue has increased 60 percent, mostly from taxes that have led to a 48 percent increase in Californians’ personal incomes over the period. However, total spending jumped 72% from $203 billion to $349 billion.

During the same period, the state’s population stagnated at 39.6 million inflation at the national level is 29%, averaging 3.4% annually, with inflation in California slightly lower at around 3%.

In other words, revenue has increased at roughly twice the rate of inflation, while spending has jumped even more.

Those numbers are reflected in a nearly 28 percent increase in the state’s workforce, from 376,990 to 481,850, as the budget expanded programs that were in place when Newsom became governor and added new categories. Health care costs, especially for low-income Californians, were one major driver, while constitutional public school funding formulas were another.

Another chart provides a clue to the huge error in Newsom’s budget staff’s 2022 revenue projections that caused the spending spike.

In 2021, as the state’s economy began to recover from the shutdown of the COVID-19 pandemic and as billions of dollars in federal aid flooded the state, general fund revenues jumped 53% above the pre-pandemic level of 2019, surpassing $200 billion for the first time in history.

For reasons known only to themselves, Newsom and his aides assumed the new revenue figure would be at least semi-permanent. That fuels Newsom’s contention, as the 2022-23 budget is being finalized, that the state enjoyed a surplus of $97.5 billionand his boast that “no state in American history has had as large a surplus as this one.”

Newsom’s declaration fuels an immediate spending increase that carries over into the coming years. But the projected increase in revenue turned out to be an illusion, and the administration subsequently admitted it was overstated revenue by $165 billion over four years.

The structural deficit has been with us ever since, standing at $125 billion so far, as Petek describes. Newsom clearly envisions a presidential campaign after his governorship is over, but a self-inflicted budget mess could come back to haunt him.

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