In California politics, there are three major movements to the annual budget Kabuki Dance. In January of each year, the governor announces a proposed budget for the next fiscal year beginning July 1st. The dance move just executed last week was the “May Revise,” a revision of the previous proposed budget, leading up to the passage of the final budget by June 15th.
As this column has previously revealed, all phases of the budget dance are fake insofar as they are subject to substantial amendments throughout the year by so-called “trailer bills” and “junior budget bills,” rendering what was for decades a rational process for fiscal planning into a never-ending convoluted outflow of taxpayer cash.
(The budget process was wholly perverted in 2010 by Proposition 25, laughingly labeled the “On-Time Budget Act of 2010.” Its real purpose was to repeal the two-thirds vote requirement for state budgets. Voters fell for the promise that budgets would be passed on time, with greater transparency and that legislators would forfeit their pay if the budget was late. Thirteen years later we now know that all three of these representations were lies.)
While the May Revise is not the final budget, it usually has the benefit of providing a bit more clarity as to the financial state of the state. But that may not be the case this year as explained below. As with previous May revisions, this one had a couple of surprises.
First, a pleasant surprise. Despite heavy pressure from far left progressives in the legislature and public sector labor organizations, the governor is not proposing any significant tax increases. So, despite the innumerable disagreements taxpayers have with Newsom, give some credit where credit is due, especially when the rejection was unequivocal: “I do not think it’s the right time to raise taxes, and I was crystal clear on that.”
The second surprise is not so pleasant: The May revise envisions even higher spending over that originally proposed in January. ($306.5 billion in total spending up from $297 billion.) More troubling is that fact that the projected deficit is $9 billion higher. ($31.5 billion deficit up from $22.5 billion projected in January.)
This is a surprise given that the odds of a recession are increasing according to most economists and California continues to spend at alarming levels. Just ten years ago, California’s general fund was $93 billion, which adjusted for inflation, would be $118 billion in today’s dollars. The state has long spent beyond its means, but the spending addiction is now in overdrive. No rational observer believes this trajectory is sustainable.
The third surprise in the May revision is the data we don’t have. Revenue projections are always tricky, and it often seems that budget planners would have more accurate projections using a Magic 8 Ball. But as difficult as it is in normal years projecting how much tax revenue will be generated, it is even more difficult this year. Because of several declared disasters, the filing deadline for most Californians is now in October, not on April 15th. Millions of Californians have yet to file their returns, making revenue projections even more speculative.
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While Gov. Newsom has referenced the later filing deadline, the Legislative Analyst notes that it can’t be used as an excuse for overly optimistic revenue projections: “Significant revenue uncertainty, however, is not unique to this year. Due to economic unknowns, policy changes, and other potential disruptions, revenues forecasts are always uncertain.” Also, “We do not view revenue uncertainties as a cause for inaction or a reason to adopt optimistic revenue assumptions.”
Both the budget process itself and the unsustainable level of government spending are bad for California. But it’s what we can expect with monolithic one-party control. And that’s no surprise at all.
Jon Coupal is president of the Howard Jarvis Taxpayers Association.