State Budget Update: Newsom’s Vetoes Foreshadow Tough Budget Year Ahead

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On the campaign trail in recent weeks, Newsom has been touting the California blue state agenda as the way forward for the rest of the country.  But when it comes to wielding his veto pen, he has governed more like a fiscal conservative as of late.

Gov. Newsom recently completed the bill signing period, issuing his final signatures and vetoes on the final measures from the 2022 legislative session that remained on his desk.

 

On the campaign trail in recent weeks, Newsom has been touting the California blue state agenda as the way forward for the rest of the country.

 

But when it comes to wielding his veto pen, he has governed more like a fiscal conservative as of late.  In fact, Newsom vetoed many of the bills creating expensive new programs on his desk, citing a common theme in his veto messages – California’s worsening fiscal picture.

 

Capitol Public Radio reports that, “nearly a dozen bills the governor has rejected in recent weeks include a letter cautioning lawmakers against spending unbudgeted funds.”

 

Among these, Newsom notably vetoed legislation to require all California students to attend kindergarten and a bill to give students access to public transportation at no cost.  He even vetoed new environmental legislation, measures that one would expect he’d champion as part of his efforts fighting climate change.

 

In doing so, Newsom virtually ignored specific policy objections to the bills, writing lawmakers instead, that “with our state facing lower-than-expected revenues over the first few months of this fiscal year, it is important to remain disciplined when it comes to spending, particularly spending that is ongoing.”

 

So, just how bad in the next budget year shaping up to be?

 

According to the latest figures from the nonpartisan Legislative Analyst’s office, withholding tax payments made by employers on behalf of their employees were $354 million – or 4.8 percent – below withholding tax payments made in the same period a year prior.  Year to date, withholding tax payments are $550 million – or 2.5 percent lower than last year.

 

In a mid-September report, the Department of Finance estimated that General Fund agency cash receipts are about $4.2 billion below what Newsom and lawmakers predicted they would be in the 2022-23 state budget.  Driving the lower figures are declines in personal income tax revenue, no doubt affected by weeks of big stock market declines.

 

Looking forward, the Legislative Analyst’s office in a September report estimated that there is a 70 percent chance the 2022-23 budget will fall below its revenue projects by the end of the fiscal year.  Their best guess is that revenue will be down by roughly $5 billion over projections.

 

 

As the S&P 500 Index is down 20 percent and interest rates are continuing to rise and throwing cold water on the economy, expect that our state tax system that is overly dependent upon capital gains tax revenue will continue to take a big hit.

 

And this means a record $300 billion state budget enacted earlier this summer, will have to be quickly pared back come January.

 

Newsom’s vetoes are the latest canary in the coal mine that a rough budget year lies ahead.

 

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

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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