Budget

Dear Legislators,

This week the Biden Administration announced that personal income rose 0.4% in April, consumers increased spending sharply, U.S. economic activity is at its highest pace in more than a year, and the unemployment rate is at an envious 3.4 percent.

Yesterday the Legislative Analyst’s Office (LAO) released its Multiyear Budget Outlook through fiscal year 2026-27, forecasting $52 billion of deficits over that period.

We couldn’t agree more with Legislative Analyst Gabe Petek that it’s best to solve the deficit without using reserves, which are already woefully short of the amounts needed to protect essential services in the event of a recession.

The Legislative Analyst’s Office (LAO) has forecast a budget shortfall of $25 billion for Fiscal 2023-24 even if a recession does not occur.

We scratched our heads Friday when — despite a steep fall-off in the stock market and a first quarter contraction of the US economy — we learned the May Revision of the Governor’s Proposed Budget expects rosy tax revenues for the 2022-23 fiscal year commencing July 1. After reading the document, we learned how that happened:

Earlier this week DOF released the Governor’s Proposed Budget for the fiscal year starting July 1. At 400 pages it takes time, a process we have now completed. Some initial thoughts follow:

Tomorrow the CA Department of Finance will release the “Governor’s Proposed Budget” for the 2022-23 fiscal year that commences July 1. At nearly 300 pages, it is one of two documents providing deep insight into the state government.* I’ve been reading them for nearly two decades now and offer a few tips:

In January, the 2022-23 Governor’s Budget will be made public, after which public hearings will commence, followed by public distribution of the May Revision to the Governor’s Budget and public enactment of the budget by June 30. Guess what’s not public during that period? Political donations from beneficiaries of budget spending.

Dear Legislators,

We enjoyed reading the Senate Budget Plan and Assembly Budget Blueprint for 2022-23. These items stood out to us:

Dear Legislators,

In January the Department Of Finance will issue the Governor’s Budget for 2022-23. No section will be more important than the Stress Test, which forecasts revenue losses in the event of a stock market decline such as in 2001-3 and 2008-9.

Dear Legislators,

The Legislative Analyst’s Office is filled with talented people who occasionally take on impossible tasks. Take LAO’s recent Fiscal Outlook for Schools in which it boldly predicts that “capital gains revenue [will be] strong in 2022‑23.” I can’t predict the stock market next week much less next year but unlike the state I’m not depending on it to finance schools that require stable annual funding. If I did, I’d keep loads of cash on hand. That’s because the annual performance of stock markets looks like this:

California needs at least $100 billion of reserves. Don’t take our word for it. See page 245 of the Governor’s Budget:

From January through June last year, the California Legislature held hearings about a proposed budget for the 2021-22 fiscal year that allocated the majority of $300 billion of spending to healthcare corporations and government employees who — during that very same period — made political donations to lawmakers that weren’t disclosed until July 31, a month after the budget had been signed into law.