Newsom’s May Revise Places Big Spending Bet That the Good Times Will Continue to Roll

Newsom’s May Revise Places Big Spending Bet That the Good Times Will Continue to Roll

On Friday, Gov. Newsom unveiled the “May Revise” to his 2021-22 state budget plan, proposing a record $196.8 billion in General Fund spending and $267.8 billion in total spending.

Saying that the budget doesn’t “play small ball,” Newsom presented what he called a “generational budget” and “a historic, transformational budget.”

“We’re trying to do things that the state has talked about but never been able to accomplish because we never had the resources to do it,” he told reporters.

No doubt responding to a looming recall election, the Governor unusually unveiled the budget’s key provisions not only at his traditional Friday budget press conference, but throughout the week at campaign-style stops around the state.

At his first press conference Monday held at an Oakland nonprofit called The Unity Center, Newsom stunned the crowd by announcing a projected $75.7 billion budget surplus – in addition to $26 billion in federal funds California is receiving from the Biden administration.

“It’s a remarkable turnaround. We talked about California coming back. I made the point at the State of the State a number of months ago that California is not coming back, California is going to come roaring back,” Newsom said.

“We are now in a position to roll out a $100 billion plus comeback plan in the state of California,” he announced.

Calling it the “biggest state tax rebate in American history,” Newsom unveiled $12 billion in tax rebates that he says will benefit two-thirds of Californians.  This included $600 in payments to taxpayers who make up to $75,000 a year and did not receive his earlier “Golden State Stimulus”, plus another $500 for families with dependents and undocumented families.

Assemblyman James Gallagher immediately termed Newsom’s tax rebate the “recall refund.”

Newsom probably had to give out some form of tax rebate as the state is running up against the Gann Limit.  Passed during the Prop. 13 era, it requires tax rebates and additional education spending if revenues exceed its complicated formula.

As the nonpartisan Legislative Analyst’s office recently wrote, the state is facing this limit because “growth in personal income tax revenue – the state’s largest revenue source – has exceeded the (Gann Limit’s) growth rate.”

The next day, Newsom announced a $12 billion plan to combat homelessness, centered around “provid(ing) 65,000 people with housing placements, more than 300,000 people with housing stability, and creat(ing) 46,000 new housing units.  The plan builds on what the administration calls “two revolutionary programs – Project Roomkey and Homekey that did more to address the homelessness and affordable housing crisis than anything that’s been done in decades.”

Most Californians who today see more rampant homelessness than ever before would probably quibble with Newsom’s assessment.  It’s just spending billions more on status quo homeless programs that haven’t really delivered to date.

As PRI’s Kerry Jackson and Wayne Winegarden, co-authors of the book No Way Home (Encounter Books), recently wrote, “more of the same isn’t the answer.”  Arguing that “a new approach is needed,” they argue that state government should rely on private charities and non-profits rather than spending billions on status quo government programs.

Finally, Newsom announced a major education spending proposal.  Saying he wanted traditional schools to “stretch the imagination,” Newsom a $20 billion plan to “reimagine public schools.”  This includes a $3 billion plan to transform schools into “full-service community schools,” $2.6 billion to boost “high dose tutoring” and $1 billion to expand summer and after-school programs.

He also proposed “creating a new grade” in California’s schools called transitional kindergarten, proposing $3.6 billion over the next three fiscal years to facilitate 250,000 students once fully implemented.  PRI’s Lance Izumi and Kerry McDonald wrote previously that the, “data do not support the call for increased taxpayer investment in government preschool.”

Even though Newsom told reporters that “we want to do (this) in a way that’s mindful that this moment shall pass” and that “these historic budget revenues and operating surpluses are not the new norm,” one gets the sense watching his 90 minute-plus press conference that the state will be biting off more than we can chew enacting Newsom’s budget agenda.

Recalled Gov. Gray Davis never learned the lesson that it is fiscally unwise to create new ongoing programs with one-time money.  Newsom said he’s spending one time money on one-time purposes, but there is new, ongoing spending in his plan.  The massive scale of his plan leaves many Californians hoping that the good times continue to roll, so we don’t have climb out of a future budget shortfall like we saw in 2008 and 2009 because of Newsom’s budget over-ambition.

Tim Anaya is the Pacific Research Institute’s senior director of communications and the Sacramento office.

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