Budget Amnesia In California

We have a lot of friends in the CA State Senate but we take issue with their recent assessment that “a decade of responsible budgeting enabled California to endure the recession.” That isn’t factual. Here’s how the 2020–21 Budget they enacted last June closed a forecasted pandemic-related deficit:

Only 16 percent of the solution came from Reserves, which are a consequence of responsible budgeting over the previous decade. 84 percent came from federal funds, deferrals, borrowing, new revenues, and hope for more federal funds. Now, fast forward to the present. The state budget not only endured the pandemic but has a cash-basis surplus. That’s because of a 40 percent increase in the stock market, which produces capital gains that CA taxes at ordinary income rates:

In other words, in 2020, California suffered a recession in private sector employment but not in tax revenues. This isn’t 2008. Meanwhile, there was plenty of irresponsible budgeting over the last decade:

The fastest growing expenditure produces no services, and the top four recipients are big political donors while the bottom four are not. That’s why the Legislature must reform pensions and other post-employment benefits, gain more value for the money they supply health care providers and prison and school employees, and ban political donations from corporations, unions and associations whose shareholders, employees or members receive money under agreements with the state or its subsidiaries.

California still has a structural deficit and lacks sufficient reserves to cover downturns in tax revenues. That means the Legislature should enact new programs only with a recurring source of funding. That’s one reason we favor covering California’s uninsured undocumented population by trimming insurance provided to retired state employees, described here. California budgets should serve residents, not special interests.

Lecturer at Stanford University and president of Govern For California