By Lance Simmens
Gov. Gavin Newsom released next year’s budget proposal in January and it sparked outcries from many constituencies. Dissecting budget estimates and the subsequent growth or lack thereof is a tricky game when it comes to the public. Regardless of whatever level — federal, state, or local — there are bound to be winners and losers. And now the battle for precious funding is in full swing.
An astute observation with respect to battles over revenue and spending I learned many years ago as a senior aide to the U.S. Senate Budget Committee was the following: “You can tell a person’s priorities by looking at his/her checkbook.” Indeed that is the truth and helps fashion debate over precious spending and taxing decisions, particularly when it comes to budgets that must be technically balanced, a restriction that fortunately for the nation is not expected nor desired for the federal government.
While budgetary decision-making and debate may seem arcane and cannot be adequately covered in the short space allowed here, the most basic understanding is that there are two sides of the ledger: revenues and spending. As a general rule it is fair to characterize liberals/Democrats as supportive of higher taxes and support for greater spending on social programs, and conservatives supportive of lower taxes and lower social spending. These are generalized for purposes of this article but relatively hold true.
State budgets must meet stringent attempts to present balanced annual budgets, unlike the federal government and its penchant for deficits and debt. While operating under obligations to balance the annual budget, the exercise is a battle that seems messy and forces politicians to maximize compromise, especially difficult when groups that are usually in sync find themselves battling one another in times of limited or declining economic growth.
The contentious battle this fiscal year will require give and take, however it is within the bounds of propriety and should be capable of adhering to fairness and the Governor’s agenda. But the process is likely to engender a tightening up on revenues and social spending that will be at odds with recent years.
According to the California Budget & Policy Center (CBPC), a nonpartisan, research-and-analysis nonprofit committed to advancing public policies that improve the lives of Californians who are denied opportunities to share in the state’s wealth and deserve the dignity and support to lead thriving lives in our communities, the current budget has sparked disagreement among key analytic organizations. The governor has identified a $58 billion budget problem while the Legislative Analyst’s Office (LAO) has estimated a budget shortfall of $68 billion.
“The LAO has provided fiscal and policy advice to the Legislature for 75 years. It is known for its fiscal and programmatic expertise and nonpartisan analyses of the state budget,” the CBPC said. “The office serves as the ‘eyes and ears’ for the Legislature to ensure that the executive branch is implementing legislative policy in a cost efficient and effective manner.”
According to the CBPC “estimates of the budget shortfall will be updated in May as more information becomes available. The key takeaway is that the state has a sizable budget problem to address in this year’s budget process … the main reason for the budget problem is that state revenue collections have been coming in much lower than previously projected, and forecasts for future revenues have also been adjusted downward as a result. This occurs after several years of strong revenue growth that produced budget surpluses and made possible new spending commitments … A large portion of the problem is related to state revenues for the 2022 tax year, which are estimated to be about $25 billion lower than policymakers expected when they adopted the budget for the current fiscal year last summer.”
Revisions will be made in May and in the meantime organizations affected by proposals to close the budget “gap” will lobby furiously to reduce or eliminate cuts offered by the governor, which include:
- Withdrawing $13.1 billion from the budget stabilization and safety net reserve accounts;
- Cutting $8.5 billion from existing programs and services, including climate, housing and education;
- Delaying $5.1 billion worth of spending;
- Deferring another $2.1 billion to 2025-26, including about $500 million in additional funding for University of California and California State University;
- Getting $5.7 billion in internal borrowing from special funds to support the tax on health care providers.
There are likely to be changes that may focus more on the revenue side of the budgetary equation. The governor may assume that revenues will be about $15 billion higher over the three-year budget window: spending across three fiscal years: 2022-23 (prior year), 2023-24 (current year), and 2024-25 (fiscal year that begins on July 1, 2024).
While this may seem to be confusing, there is still plenty of time with which to alter or witness increased revenues to meet the deadline and requirements. The funds being discussed, within the context of a $291 billion budget, are manageable and it is likely that those pounding their fists on the table are doing so more out of frustration than budgetary analytics. Stay tuned!