Mr. Newsom Makes My Case

The Newsom Administration is circulating a rebuttal to my criticism of the Governor’s Proposed 2024-25 Budget. As a reminder, that criticism is that Mr. Newsom proposes to draw on the Rainy Day Fund even though the country is not in a recession and doing so would seriously impair the state’s ability to preserve public services in a recession. As Mr. Newsom himself pointed out in his 2022-23 budget, California is already short of reserves needed in a recession that could drop annual General Fund revenues “$30 billion to $40 billion for several years,” but still Mr. Newsom proposes to draw more than half of the $23 billion Rainy Day Fund to help meet a non-recessionary deficit. 

Ironically, the rebuttal itself rebuts Mr. Newsom’s assertion that circumstances today warrant draws from the Rainy Day Fund. Egthe document crows that the Newsom Administration has “invest[ed] most of the revenue increases in one-time programs” and asserts that “excluding one-time expenditures, ongoing expenditures increased 33% between 2019-20 and 2021-22, while revenue grew 65%,” but if ongoing expenditures increased only 33%, then why is the state proposing to invade the Rainy Day Fund when revenues in Mr. Newsom’s proposed budget are projected to be 53% higher than when he took office? Elsewhere, the document acknowledges — in large caps no less — that the state is “NOT facing a historic deficit” and nowhere in the document is a claim that the state is in a recession, yet the precedents cited for the actions Mr. Newsom proposes took place during recessions when facing historic deficits. Eg, the proposal to defer recognition of payroll costs is defended by pointing out that “this budgetary tool was included in the 2009 Budget Act during the Great Recession” to address an historic deficit, but neither a recession nor an historic deficit exist today. Likewise, the rebuttal defends negative out-year balances by referral — yet again — to a precedent involving an historic deficit in the midst of a recession, neither of which exist today.  

So why is Governor Newsom proposing to invade the Rainy Day Fund when it’s not raining? Perhaps a few facts drawn from state schedules might shed some light. During Mr. Newsom’s five fiscal years as governor for which budgets have been enacted, the state’s General Fund appropriated $956 billion. None net went to reserves (the Rainy Day Fund added a net $9 billion but that was more than offset by a net $10 billion reduction in the Special Fund For Economic Uncertainties), $330 billion and $39 billion went to K-12 and Community Colleges as required by the constitution, $23 billion went to each of UC and CSU, and very large amounts went to Executive Branch salaries ($113 billion) and Health & Human Services ($286 billion) —  the two segments that also grew the fastest with salary spending up 57 percent since Governor Brown’s last enacted budget and Health and Human Services spending up 87 percent. The former explains how our progressive state awkwardly spends $132,000 per prison inmate, the latter explains how billions of taxpayer dollars move every year to corporations and unions who, coincidentally or otherwise, provide financial support to the governor and legislature, and together that growth in spending likely explains some of the reason for proposing to draw on the Rainy Day Fund even though it’s not raining. But one thing is clear: since the state is dealing with neither an historic deficit nor a recession and reserves are already well below those needed in a recession, the Rainy Day Fund should not be touched.

PS, the rebuttal also contains factual errors about retiree health care obligations. Eg, the University of California expresses on page 17 here that “retiree health benefits are not a legal obligation of the University and can be canceled or modified at any time.”