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Budget deficit poses Newsom’s first big challenge as governor

SACRAMENTO – Gavin Newsom is perhaps one of the luckiest governors in California history given that he has presided during an economic boom that, at one point, left the state with an almost unimaginable $97.5-billion budget surplus. Mainly, all he had to do was propose spending programs – and he had compliant Democratic supermajorities to give him what he wanted.

Even the COVID-19 situation, despite posing a serious public-health challenge, was a godsend for the state’s chief executive, given that the normal constraints of governing went by the wayside. Like many other governors, he grabbed vast executive powers – issuing hundreds of edicts. Many of them only tangentially related to the pandemic. How many governors historically have exerted so much power?

He’s even been blessed by Mother Nature. Back in December, California stared down an unusually severe drought – one that environmental Chicken Littles claimed was the beginning of a centuries-long mega-drought – that was leading to tough choices including water rationing. Then the skies opened up for two months and the reservoirs are full.

Talk about living a charmed life. The governor has gotten so big for his britches that he recently toured some Southern states, where he lectured local residents about their “authoritarian leaders.” Perhaps the governor doesn’t do self-awareness, but back here in the Golden State our problems are mounting. His solutions aren’t working.

Last week, I wrote about how San Francisco is not the dystopia conservatives describe, but the city is in the throes of major crisis as the numbers of homeless increase and property crimes force retailers to shutter. Every major California city is wracked by homelessness. Crime is rising. Our population is falling as residents head to some of the benighted places the governor toured last month.

This confirms my long-time theory of California government: Good economic times result in the worst policy outcomes because our leaders don’t have to make any hard choices. They just spend more money, pass more regulations and create new agencies that result in the same old failed outcomes. Hey, we’re the worlds’ fifth largest economy. So why not?

But now Newsom will have to make tough choices, as the economy veers into recession and our capital-gains-dependent budget tanks as the tech economy sputters. In January, the administration predicted a $22.5-billion budget deficit and the latest data suggests that deficit likely will top $27 billion or more. The governor is receiving brickbats from special interests for his modest proposed cuts.

During our last major budget crisis, then-Gov. Jerry Brown – who, unlike Newsom, always warned against creating permanent programs given the likelihood of a future recession – faced a similarly sized deficit and cut spending. It was a tough process.

At one Capitol press conference, a reporter grilled him on why he cut social programs. He quoted the infamous robber Willie Sutton: “Because that’s where the money is.” He also passed a modest but useful pension-reform measure. Without the budget crisis, union-friendly legislators never would have pared back those six-figure public pensions.

Brown also ended redevelopment agencies – locally controlled agencies that redirected tax revenues to corporate subsidies. Because the state had to backfill money to the public schools, they diverted billions of dollars from the budget. Without a crisis, those agencies would still be alive – although clueless lawmakers now are proposing their return. Bad timing.

Brown also dealt with a federal court order to reduce the state’s prison overcrowding with a policy called realignment. Whatever one’s views of that plan to house prisoners in local jails, it never would have come without outside pressure. That’s the theme here. Left to their own devices, California lawmakers never make the hard choices.

Unfortunately, Brown also dealt with the deficit by ushering in major tax increases, thus jump-starting the same tax-and-spend process that has left us where we are today. Legislators also are looking at raising taxes again on the “rich,” but that will only promote more business out-migration and lead to continuing budget woes.

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So far, Newsom’s plan mainly involves kick-the-can gimmicks. I’ll look closely at his proposals as the budget process proceeds, but I’m left with a nagging question. What exactly did the state do with that nearly $100-billion surplus? Inquiring minds want to know.

That was a once-in-a-lifetime windfall that could have largely fixed our transportation backlog, upgraded our water systems, re-jiggered the tax code, and even made a dent in the homeless problem. Have you seen any serious progress on those issues? Don’t get me started on all the fundamental improvements the state could make if it jettisoned the absurd bullet train to nowhere.

When tough times stress my personal budget, I spend less money on frivolities such as motorcycles and fine wines and more on life’s necessities. It forces me to find creative ways to finance, say, that long-delayed roof repair. Same goes with state budgets. Maybe finally we’ll see whether Newsom is ready for prime time.

Steven Greenhut is Western region director for the R Street Institute and a member of the Southern California News Group editorial board. Write to him at sgreenhut@rstreet.org.

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