California Government Awash in Money Now, But a Reckoning Lies Ahead


Did a member of the California Legislature inadvertently, and quite publicly, admit that “progressive” governance is unsustainable?

While discussing the state’s eviction protections and financial aid for renters during a CalMatters podcast, Assemblyman David Chiu, a San Francisco Democrat, said “If we run out of money, all bets are off.”

This is not a problem unique to a single government program, but an apt description of all systems in which the redistribution of wealth is the primary objective. Margaret Thatcher best summed it up when she famously said during a television interview three years before being elected British prime minister that “socialist governments traditionally do make a financial mess. They always run out of other people’s money.”

This is not to say that California has a socialist government like those Thatcher referred to. But it is a “progressive” blue state, where the highest income and sales taxes in the country, and the fourth-highest corporate taxes, fund ​​one of the country’s most generous social safety nets. And it’s a net that is about to be cast wider and deeper than before.

The Legislature, with unanimous votes in both chambers, has approved the nation’s first state guaranteed income plan. Sacramento is now committed to pay out $35 million a month to “residents exiting the extended foster care program and pregnant individuals,” according to the Senate floor analysis.

California lawmakers and various activists are determined to one day socialize health care in the state, finance political campaigns with taxpayers’ dollars, and enact a wealth tax that penalizes prosperity. Meanwhile, a woefully underfunded government employee pension system threatens to drag public finances into a deep hole, dollars are poured into a homelessness problem that only grows worse, two separate state government stimulus payments to California residents are costing taxpayers billions, and $7 billion will be spent to pay the back rent and utility bills of those who fell behind after the “progressive” government shut down the economy.

Because large corporations profited heavily during the pandemic — thanks in part to misguided government policies that caused many small businesses, their competition, to close — and pumped up taxable capital gains, Sacramento had a larger pile of other people’s money to spend on the 2021-22 budget than it ever has. In addition, the state has taken in tens of billions in COVID-related funds from Washington.

When Gov. Gavin Newsom offered his budget revisions in May, a writer at The Nation, a progressive magazine that claims to “speaks truth to power,” expressed his excitement over the possibility that “California could be poised to go down the social-democratic route taken by most Western democracies three-quarters of a century ago.”

The budget bills have now been passed and signed, at a cost of a record $262 billion, and that same Nation writer has gushed about the vast spending that lawmakers have lined up.

“The huge influx of dollars into the state’s general fund,” wrote Sasha Abramsky, “coming at a time when Gov. Newsom is desperate to make his mark on the state in the run-up to the recall vote — is leading to a blossoming of creative policies and programs. Their impact will likely be felt for decades to come.”

No doubt about that, but most of California isn’t going to like the way things feel.

Maybe one day Abramsky should meet a former California governor, one Jerry Brown, whose response to the budget was to point out that “money doesn’t grow on trees.”

“The state is now spending money, it’s not sustainable. We need a more frugal, sustainable, more prudent way of doing business,” said Brown. “I would predict that certainly within two years, we’re going to see fiscal stress.”

The pressure has been building for about two decades. From 2000 to 2019, California increased its per capita state government spending by 52%, three percentage points higher than New York, which was second among the four largest states, according to the Heritage Foundation. Over the same period, per capita state government spending in Texas rose only 5%. In Florida, it fell 15%.

In the case of eviction protections, lawmakers are finding themselves within sight of the end of the flow of other people’s money. But rather than an exception, it’s the forerunner of a future in which voracious politicians run out of other people’s money. It’s not a question of if but when.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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