With all the breaking national news, many taxpayers have little bandwidth in their attention span to focus on the state budget. Moreover, the state budget process can be indecipherable even for political insiders. But taxpayers should be paying attention for the simple reason that it’s their money that is being spent.
With no pretense at being comprehensive, here are the most important things taxpayers should know about the state budget proposal that was introduced by Gov. Gavin Newsom on January 10th.
First, the proposed 2020-2021 budget submitted by the governor in January almost certainly will be different from the final budget, which must be enacted by June 15, 2020. There is much wrangling among politicians to be done before we get a final spending plan. Also, unlike years past, the budget will likely be on time. Budget stalemates are now rare given that California is awash in taxpayer dollars and legislators no longer get paid if the budget is late.
Second, the governor’s budget is huge. Its proposed $222.2 billion in spending is larger than any in California history. What else would one expect?
Third, despite all the disagreement in the Capitol, there is a surprising consensus that California should continue to build up its reserves for the inevitable recession. Unlike other states that rely on a more broad mix of taxes, California is unusually reliant on high-income individuals who produce vast amounts of capital gains and stock option revenue.
That leaves our state extremely vulnerable to economic downturns. The governor proposes $2.6 billion more into reserves out of the projected $7 billion surplus. This would bring all of California’s reserves up to $21 billion, which would only be sufficient if we had a very mild economic downturn. But if we were to experience a recession on par with what we had in 2008, all bets are off.
As an aside, taxpayers shouldn’t assume that a healthy surplus means that California is financially stable. Keep in mind that a budget is more like an income statement, not a balance sheet. Only the latter reflects liabilities and, in California, government liabilities are huge.
According to the Department of Finance, unfunded pension liability is $250 billion. But some calculations from other sources are over twice that. In any event, the California Public Employees Retirement System is only 69 percent funded, well below the 80 percent recommended by Wall Street pension experts.
Fourth, given that homelessness is California’s crisis du jour, it should be of little surprise that Newsom is proposing over $1 billion in new money for homeless programs, including funds allocated to major cities in last year’s budget. But the issue here is whether this money will be spent wisely. The number of new housing units declined to under 100,000. California needs 180,000 new homes annually to keep pace with demand and, despite throwing money at the problem, we’re falling further behind.
Fifth, as we know, California’s state motto is “It’s for the Kids.” So schools get a record $84 billion. Taxpayers may wonder why schools are getting $330 million more than last year when enrollment is declining. The answer is that it’s not really “for the kids,” it’s for public sector unions.
No state budget would be complete without a tax increase, so there is a proposal for a new draconian vaping tax.
The state budget is full of complex details that ordinary voters find incomprehensible. What they do understand, however, is that California is a high-tax, high-spending state where the level of public services falls far short of those provided by other states that tax and spend far more modestly.
Jon Coupal is president of the Howard Jarvis Taxpayers Association (hjta.org).