Since 1941, California\u2019s Legislature has had an independent budget adviser to monitor the ebb and flow of state finances \u2014 particularly the governor\u2019s budget \u2014 and suggest ways they could be improved.<\/p>\n
Traditionally, the Legislative Analyst\u2019s Office ignores politics and provides its advice in neutral \u2014 even bland \u2014 language, implicitly telling politicians that they are free to either accept or reject its findings, but at least they cannot claim ignorance.<\/p>\n
Recently, however, Legislative Analyst Gabe Petek, just the sixth person to hold the position over the last 85 years, has adopted a more emphatic tone, warning Gov. Gavin Newsom and legislators that they must close their chronic, multibillion-dollar deficits.<\/p>\n
For the past four years \u2014 when Newsom declared that the state had a $97.5 billion surplus that turned out to be an illusion based on an erroneous revenue projection \u2014 he and legislators have been overspending revenues, creating $125 billion in deficits that were papered over with on- and off-the-books loans, deferrals and creative bookkeeping, such as shifting the state payroll from one fiscal year into another.<\/p>\n
Petek\u2019s latest cautionary report, issued this week, ramps up the language even more, detailing how general fund spending has increased by over $100 billion a year, outstripping revenues, since 2019, the year Newsom took office.<\/p>\n
\u201cBoth our office and the administration have estimated the state faces structural deficits ranging from $20 billion to $30 billion annually,\u201d Petek reiterates. \u201cWhile recent revenue gains \u2014 driven by a strong stock market and investor enthusiasm surrounding artificial intelligence \u2014 have buoyed the state\u2019s near-term budget picture, long-term imbalance will likely persist without significant policy changes.\u201d<\/p>\n
That passage may be aimed at indications that politicians may rely on another expansive revenue projection, ala 2022, to postpone the day of reckoning.<\/p>\n
Newsom has promised that his revised budget will not only close current gaps between income and outgo, but it will ensure his successor won\u2019t be stuck with a budget leaking red ink.<\/p>\n
Newsom recently told Democratic legislators, \u201cMy obligation is to also have the back of the next governor and the next Legislature,\u201d according to Politico, adding that he would do whatever is necessary to balance the budget, including spending reductions, but remains averse to new taxes.<\/p>\n
Petek says most of the increased spending since 2019 has been essentially automatic, driven by cost-of-living adjustments, caseloads in health and welfare services and, in education, formulas locked into the state constitution.<\/p>\n
However, a substantial portion has been what officials call \u201cdiscretionary,\u201d meaning it was not required by current law. \u201cIn retrospect, the state could not afford to sustain its existing services while funding the chosen suite of expansions and new programs under the same tax revenue structure,\u201d Petek says.<\/p>\n
The analyst characterizes his new report as \u201ca first step in making fiscally sound evidence-based policy decisions\u201d and tells politicians they \u201cwill need to make difficult budgetary decisions in the years ahead. Near-term revenue gains may temporarily mask structural imbalances, but in the coming years, the fiscal realities are likely to be undeniable. Addressing the budget gaps will require sustained and consequential action \u2014 through revenue increases, spending reductions, or likely both.\u201d<\/p>\n
So what about a tax increase?<\/p>\n
Some legislative leaders have suggested tax hikes, probably on corporations, to not only cover chronic deficits but offset reductions in federal support. With Newsom generally averse to that option, Petek warns \u201celiminating deficits through tax increases alone would require substantially more in new revenues than the deficit itself \u2014 potentially $30 billion to $60 billion per year,\u201d noting that education automatically claims 40 to 50 cents of every new revenue dollar.<\/p>\n
We\u2019ll see if Petek\u2019s tough love advice finally gets Newsom and legislators to pull their heads out of the sand.<\/p>\n
CALmatters is a public interest journalism venture committed to explaining how California’s state Capitol works and why it matters. Dan Walters has been a journalist for nearly 60 years, spending all but a few of those years working for California newspapers.<\/p>\n","protected":false},"excerpt":{"rendered":"Since 1941, California\u2019s Legislature has had an independent budget adviser to monitor the ebb and flow of 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