July 11, 2020

California budget punts on the big issues

After lawmakers sent Gov. Gavin Newsom a budget plan that he signed on Monday, a northern California Assemblyman told a newspaper that, “the choices we have to make here are not perfect.” That summarizes this cobbled-together budget with nearly perfect understatement.

The budget attempts to deal with a projected $54 billion deficit caused by the pandemic shutdowns, but mainly delays hard decisions until some future date. This is not the worst effort we’ve ever seen, as legislators cut billions in funding to universities, court systems and public employees. Many of the cuts really are just rollbacks of previously proposed spending increases.

In fairness, lawmakers are operating in the dark, given the unusual uncertainties of current fiscal projections. And the budget is balanced, as the governor stated, but is filled with accounting tricks and puts Democratic ideological priorities above prudence. Imperfect, indeed.

Let’s start with the gimmicks. As the Sacramento Bee reported, the budget “avoided forcing schools to make cuts immediately by deferring billions of dollars in payments, nearly $6 billion of which could be restored if the federal government sends California more money.” That measure depends on overly optimistic forecasts of federal funding. It will force local school districts to rely on borrowing, and could create new pressure for local parcel taxes.

The budget also relies on unrealistic revenue assumptions – an especially dubious tack given that the state is slowing some of business re-openings in the wake of surging COVID-19 cases. The budget includes billions of dollars in deferred tax breaks for businesses, and $22 million in spending to enforce Assembly Bill 5, which bans companies from using contractor labor. Lawmakers seem oblivious to the way that such taxes and regulations will impede economic recovery.

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The budget provides some additional spending, most notably an extra $716 million in emergency funds for the governor to spend on pandemic-related endeavors. That was much less than $3 billion the governor had sought. Fortunately, the budget cuts nearly $3 billion in public-employee compensation – some of it coming from planned furloughs – and rejects a Democratic plan to expand Medi-Cal coverage to unauthorized immigrants.

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However, there’s less than meets the eye when it comes to public-employee cuts. Those 10-percent pay cuts will pencil out to lower-than-predicted savings, given that the governor is letting them forego previously agreed-upon withholdings for retiree medical benefits.

The budget taps $11 billion from the state’s rainy day fund, which reinforces the importance of building such reserves. Nevertheless, state and local governments may face growing problems when the two big pension funds – the California Public Employees’ Retirement System and the California …read more

Source:: Los Angeles Daily News


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