May 17, 2022

Sacramento’s mythical budget surplus

View Original Notice ? Sacramento’s mythical budget surplus

Gov. Gavin Newsom’s new, record-setting budget is built in large part on a massive surplus that special-interest groups cannot wait to spend.

There’s a little money for the homeless, a bit for climate change, money for women from other states and countries seeking abortions here, even money to provide healthcare for immigrants here illegally. In a rarity for California, there’s even talk of a modest tax refund.

But there is no actual surplus.

In fact, California’s state and local governments are shouldering a staggering $1.5 trillion in debt – 32 times the $46 billion surplus the governor’s office claims.

What’s worse is that the state doesn’t actually know how much it owes – to retired workers, to Wall Street and banks, to healthcare providers.

Financial reports for 2020 are already months late, with rumors they won’t be complete by the time the governor’s budget must be approved by the state legislature.

Then, too, Fi$Cal, the state financial accounting system rolled out in 2005, is still incomplete. The independent state auditor says the system is not only broken, it’s millions of dollars over budget. She and her counterpart in the Legislative Analyst’s Office accuse powerful state officials of lying about Fi$Cal. Without a functioning accounting system, state officials, the governor, lawmakers and agency heads are flying absolutely blind.

California Policy Center has provided the most comprehensive analysis of California finances.

Our report shows Newsom’s so-called surplus is overshadowed by a mountain of long-term liabilities, and that California government debt at all levels – cities, counties and school districts, for instance – has risen dramatically.

Much of that debt is money owed to fund the retirements of government workers. And all of it is dependent on the stock market. If the market drops, personal income tax and capital gains tax revenue will decline precipitously, wiping out even the modest surpluses Newsom claims.

Nevertheless, the media are already publishing stories about how state officials will spend this fictional windfall. Terrifyingly, few reporters have asked whether there’s any surplus at all, and Newsom isn’t eager to reveal that the cupboard is, in fact, bare.

For their part, the state’s powerful government union leaders have no interest in spreading financial literacy. They depend on mythical surpluses to push lawmakers – politicians they helped elect – to raise taxes, take on more debt, and leave the financial crisis to the coming generation. In return, those lawmakers can count on the continued political backing of those union leaders.

When I was a kid in California in the 1970s, a popular bumper sticker on the backs of luxury cars, RVs and campers read, “We’re spending our children’s inheritance.” It turns out that was no joke. It’s now the official policy of the state of California.

Will Swaim is president of the California Policy Center, and co-host of National Review’s Radio Free California podcast.

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