Gov. Gavin Newsom’s first budget plan proves the old English proverb is wrong. Turns out you can have your cake and eat it too, especially when the state has a $21.4 billion budget surplus.
Continuing with the clichés – state budgets are usually feast or famine. Over the years, governors of both parties have taken to the microphone to either announce painful cuts in years of massive deficits or make everyone’s budget dreams come true in years of surplus.
With a massive budget surplus, Gov. Newsom was able to play Santa Claus in a rare January appearance. He announced that spending would go up by nearly $8 billion. The General Fund would grow to roughly $144 billion in his budget plan.
He passed out expensive gifts to all of his friends and supporters – $2 billion in new spending for “early learning” programs like universal pre-school, $40 million to expand the free community program to cover the second year of school, doubling the “earned income tax credit” favored by liberals to $1 billion, an expensive and expanded paid leave program.
In any other budget year, fiscal conservatives would be decrying the spending increases in the budget and calling Newsom a “liberal big spender”.
But a $21 billion deficit allows Newsom to spend big and seem fiscally prudent. His plan socks away $15.3 billion in the state Rainy Day Fund (which long a priority of Assembly Republicans, by the way). In fact, Newsom proposes to save more than the maximum amount of savings allowed by law in the fund through “voluntary” savings (legally, there’d likely be no restriction on how these voluntary funds could be spent.)
He also proposes paying down some debt – $4 billion to pay down state pension and retiree health care obligations. Sen. Jim Nielsen praised this proposal, saying that, “debt retirement and paying into the pension liabilities will be very helpful for future generations.”
Even Sen. John Moorlach, the Legislature’s top “budget hawk,” called Newsom’s proposal a “great start”. But he noted that significant public employee retirement debt remains. As PRI’s Wayne Winegarden found in his research, the state is facing nearly $1 trillion in unpaid public pension debt, if you take a more honest view of the size of the problem.
Interestingly, Gov. Newsom threw some cold water on his plans. With former Gov. Jerry Brown’s warnings of “exuberance, followed by regret and pain” ringing in his ears, Newsom noted that even a mild recession could bring a screeching halt to the spending party – to the tune of $70 billion in lost revenue over 3 years and a $40 billion deficit.
Of course, this is just the “opening offer” in the budget discussions that now begin with the Legislature. Liberals who were largely thwarted over the past 8 years by former Gov. Jerry Brown’s rejection of creating new programs funded by one-time funds have their own wish list that is different than Newsom’s. While they likely support his proposals too, expect lawmakers to test just how firm the new Governor is and push to increase spending even more in the final budget that will be adopted in June.
Tim Anaya is the Pacific Research Institute’s communications director.