Analysis of California Governor Gavin Newsom’s first year as governor is in the “Monday morning quarterback” phase as the media, supporters, and opponents measure his legislative priorities against his campaign promises.
Since passing the largest state budget in California history at $214.8 billion, Governor Newsom has been given a free pass regarding state fiscal policy in 2019.
While the 2019-2020 budget was praised for boosting the rainy-day fund or budget reserve to $20 billion, the eighth highest in the nation based as a percentage of state spending, that reserve is barely enough to cover any state operations for a period of time when the next downturn hits.
Governor Newsom proclaimed earlier this year that his administration won’t be a third term of Governor Jerry Brown. His recent announcement of another massive salary increase for state workers shows that Newsom is making good on that promise.
The governor recently announced deal for state worker raises will add on another $5.6 billion to the budget annually. Around 147,000 state workers are in line to get a pay raise. According to the State Controller’s Office, the state spent $26.6 billion on wages, retirement, and health benefits for state workers in 2018.
Some of you may remember way back when Governor Jerry Brown came into office in 2011 and proceeded to cut down on state expenses to deal with the looming recession.
Brown nixed some 30,000 cell phones for state workers and halted state agencies from buying new cars, ordering them to sell agency vehicles that were non-essential for state business. To hammer home the image of frugality, the Los Angeles Times even noted that Brown drove a 2008 Pontiac to get to work back then.
Governor Brown also championed the California Employees’ Pension Reform Act, or PEPRA, in 2012, which ended the gaming and manipulating of state pensions and helped reduce outstanding pension debt. His decision, which was challenged by a local California Department of Forestry and Fire Protection, or Cal Fire, chapter, was upheld by the California Supreme Court this year. PRI filed an amicus brief in support of the reforms, too.
Governor Brown was never shy to grapple with unions either. He pushed back against the SEIU in 2016, almost setting up a strike before an agreement was reached. The International Union of Operating Engineers also had an 18-month standoff over contract negotiations with the Brown administration.
Yet despite fiscal warnings from Governor Newsom himself, $5 billion pay raises will make the state budget that much more unmanageable in the event of an economic slowdown. These kinds of increases only add to the strain on California’s budget.
California’s unfunded pensions continually compete with other programs for more state dollars. A 2018 PRI study found that California’s unfunded pension obligations will hover close to $1 trillion in the next couple decades. The growth of pension costs is causing a “pension crowd-out,” with funding normally reserved for education or public safety being siphoned for pensions.
If California is hit by a recession under Governor Newsom’s watch, how will his administration react to agency finance directors and unions who want to maintain their budgets? It’s simple for the governor to cut back on programs like high-speed rail or the delta tunnels when cuts don’t have to be made or the programs are already unpopular. But what happens if, or when, California’s budget sinks into the red?
Dave Ramsey has a famous quip about managing money. He says there are two kinds of people: ones who tell their money where to go and ones who wonder where it went. Hopefully, Californians won’t be asking the latter.
Evan Harris is the media relations and outreach manager for Pacific Research Institute.