In 2022, California had $72 billion in surplus revenue. In 2023, that ballooned to $88.8 billion. Today, the state is glaring at a deficit of $40 billion to $68 billion. Yes, you read that correctly; under Governor Gavin Newsom, the state squandered more than $160 billion – the budgets of Texas ($135.2 billion) and New Mexico ($24.7 billion) combined. How did this happen? How could this have been prevented? What can be done to get California’s budget back on track?
The state’s revenues rely heavily on the highest-income Californians, who pay the largest share of the state’s personal income tax. In 2019, the top one percent of earners paid almost 45 percent of all personal income taxes.
In other words, when the state’s wealthiest residents did well like in 2022 and 2023, the state revenue skyrocketed and the state enjoyed record surpluses. But when the economy and their incomes plummet, so does the state’s revenue.
Given the volatility of that key revenue source, Republicans warned the governor and Sacramento Democrats that their runaway spending would not be sustainable.
We urged them to spend the taxpayers’ dollars judiciously, and more importantly, to set aside more money than the bare minimum required by law so that the state would have sufficient reserves to draw from during the inevitable deficit like the one we are facing now. In fact, in 2021, I called for the governor to replenish $7.8 billion of reserves that were withdrawn in 2020 when the state was facing a potential pandemic recession.
Our warnings were ignored.
In the last three years, the Governor and legislative Democrats added $17.3 billion in new ongoing costs, despite knowing that the state faced uncertain budget projections and unpredictable revenue.
In presenting his $291.5 billion budget proposal to the Legislature Wednesday, the governor touted his Administration’s spending as prudent. Instead of addressing the gravity of this year’s budget deficit, he chastised journalists for reporting the independent Legislative Analyst’s deficit forecast of $68 billion which he argued is too high.
Rather than cut spending to adequately address the deficit, the governor continues to wage a war on California’s employers – especially those in the energy sector, which results in higher gas prices at the pump.
Employers and workers are already leaving the state in record numbers. In fact, more U-Haul trucks left from California than any other state for the past three years. Given that their business and paychecks are major sources of income for the state, this is a cause for alarm.
Job creation and economic activity, particularly middle class manufacturing and trade jobs should be supported to attract employers, which will also help increase and stabilize revenues for the state and local governments.
The governor’s proposal also fails to fund what should be budget priorities. Water infrastructure is desperately needed, yet not a drop of new water storage has been added.
Surpluses have vanished and excessively high revenues are a thing of the past because spending has only increased. The state unfortunately appears to be entering a new, “normal” for our revenue stream.
Spending must be reduced to align with lower than expected revenue streams, while one-time and limited-term spending must be curtailed.
The situation is dire. The governor must lead.
No more gimmicks. No more new spending. No tapping into the Rainy Day Fund until spending is under control.
The governor craves national attention. But making splashy headlines and deflecting won’t solve the state’s fiscal crisis.
Waiting will not absolve the governor of his lack of preparation, and will only cause more harm to the most vulnerable Californians.
Vince Fong is vice chair of the Assembly Budget Committee.
