Gov. Gavin Newsom has announced an ambitious list of 400 new budget proposals based on a $76 billion surplus, but much of the money is already spoken for by constitutional mandates and the number of initiatives is raising questions about California’s long-term financial health.
The nonpartisan Legislative Analyst’s Office (LAO) last week released a report showing the surplus is roughly half –about $38 billion – because of requirements to fund schools and other public services.
“The state has a lot of debt, especially debt from pensions and retiree healthcare benefits, and with this one-time money coming in, we should be paying that down,” Marc Joffe, senior policy analyst with the Reason Foundation, told the Northern California Record. “We have the opportunity to right the fiscal ship in California, and we’re not taking it.”
Joffe noted some of the programs, including transitional kindergarten, may become available at the federal level and could be unsustainable long-term with state funds.
The $600 stimulus payment being presented as a tax rebate intended to satisfy the Gann Amendment also has raised questions. “Economically it doesn’t pass the smell test for me,” Joffe said.
The LAO analysis notes that tax reductions are a practical alternative.
Potentially raising taxes to refill the state’s depleted Unemployment Insurance Trust Fund also has raised concerns.
“I agree with business leaders that have criticized the governor for skimping on that,” Joffe said. “We don’t want unemployment taxes to go up and slow the recovery – we want to get people back working as soon as possible.”
The revised budget allocates $1.1 billion for the UI fund, which is estimated to be $23 billion in debt.
“The UI Fund is the single most important safety net program for working Californians and its solvency should be one of the state’s highest priorities,” Rob Lapsley, president of the California Business Roundtable (CBRT) said in a news release.
The state is required to pass a budget by June 15.
“I agree with the LAO, the legislature’s best option is to not allocate all the money,” Joffe said. “Maybe after the recall when things quiet down a little, they can figure out how to allocate – I don’t think there’s any huge rush to spend this money – they can pass a budget with a surplus and then figure out later how to spend some of that surplus if they want.
“The legislative analyst has done California a huge public service by breaking this down, and I hope the Legislature listens.".