Gov. Newsom and California Democrats: Don’t play games and bungle a tough budget | Opinion

A period of spectacular revenue growth has ended in California. That means Gov. Gavin Newsom and the Legislature — equally inexperienced with difficult budget cycles — will face crucial decisions to approve a spending plan for the coming fiscal year in California by June 15.

Based on state forecasting models, this won’t be the last time. An era of deficits and difficult budget decisions lies ahead.

Opinion

We believe that strategic cuts that don’t sacrifice the state’s core missions and revenue increases that don’t further harm the economy should both be on the table.

Climate change and homelessness are two pressing issues that demand consistent financing. If it’s true that a state budget is about values, then funding efforts to roll back the impacts of climate change should be exempt from the whims of budget politics. The same can be said for funding statewide efforts to bend the curve of homelessness and misery experienced throughout California.

How does California budget its values in difficult years like this one?

A more relentless eye on spending efficiency combined with a steadier revenue stream are essential to making that happen

There is an understandable focus on revenues this budget season for two reasons: Many Californians have not filed their 2022 tax returns because of the shift to an October filing deadline due to the storm emergencies, so the state has limited data on what it will ultimately collect when the fiscal year ends on June 30.

Meanwhile, predicting how the economy will perform is beyond the ability of any model, no matter how sophisticated.

With half of state income taxes coming from only 1% of the state’s wealthiest residents, California has one of the most volatile revenue structures imaginable.

Last month, the Newsom administration forecast an imbalance between revenues and expenses of about $32 billion and proposed closing it with a traditional set of maneuvers. About $8 billion in one-time spending was delayed, existing bond proceeds will cover some costs rather than incoming revenues, and additional federal funds for health care will cover another $2.5 billion of the problem.

Yet, missing was a comprehensive plan for how to trim fat in every department — a process that inevitably happens when general fund spending nearly doubles in six years. Senate Republicans are right to question a 23% increase in state employees during the last decade.

Instead, Newsom’s budget proposes to lop off a few financial branches, when a careful pruning of the tree is desperately needed.

The lack of attention to the spending side resulted in neither branch of government setting the stage for a necessary discussion about strategic revenue increases. The governor wrongly opposes any discussion of the matter, saying tax increases are off the table.

State Senate Democrats deserve credit for showing how to increase revenues in a way that can lead to both tax decreases and spending increases targeting those who truly need it.

Corporations are contributing less to the federal budget ever since Congress, in 2017, lowered the tax rate from 35% of income to 21%.

In Sacramento, Senate Democrats this year suggested lowering the state rate from 8.84% to 6.63% for businesses making less than $1.5 million a year and raising the rate to 10.99% for businesses making more than $1.5 million.

The Democrats proposed spending most of the estimated $7.2 billion in new revenue to cover the costs of tax cuts to small businesses and a renters’ tax credit. The new spending would be earmarked for the homeless, schools and subsidized child care.

Newsom must protect public transit

Then there is the matter of what the budget is simply missing.

The proposed budget leaves unresolved whether and how to keep urban transit agencies in business. Federal bailouts during the COVID-19 crisis are over, and ridership has not returned to pre-pandemic levels and may never any time soon.

Public transit should be the foundation of the state’s climate change strategy because of its lower per-passenger emissions compared to the automobile. Cutting routes would likely trigger ridership declines and then revenues, a classic fiscal death spiral. The challenge is to provide enough funds to keep transit afloat while forcing a re-examination of the mission, particularly in a Bay Area once dominated by downtown San Francisco.

Equally unresolved is the precarious future of hospitals in rural areas and disadvantaged urban communities. They are in financial straits as they have cared disproportionately for low-income patients and received state reimbursements that have not covered costs.

Ignoring problems of this magnitude would only lead to greater future costs.

The governor’s proposal of $10 billion in one-time spending is a reasonable ceiling for him and lawmakers to cobble together a compromise.

Last, but hardly least, is the unsavory tradition of packing the budget with so-called “trailer bills.” This has become an odious Sacramento tradition where complex policy issues are jammed into budget bills that deserve careful consideration.

Newsom proposed the mother of all trailer bills last month when he unveiled a complex plan to accelerate a range of infrastructure projects with a slew of bills to be tacked onto the budget. There are plenty of unresolved budget matters to keep Sacramento busy between now and June 15 without adding bills that should be debated over the summer.

This is no time for an autopilot budget. With revenues truly unpredictable this coming fiscal year, the administration must be poised to take additional actions should tax receipts begin to fall dangerously short.

California is too vulnerable to these swings because we neither spend nor raise funds as wisely as we should. The “rainy day” reserves, untouched in the governor’s proposal, do not even cover 10% of a single year’s budget. There is no avoiding the need to do better at surgically cutting costs and diversifying revenues. There is no shirking of the values California must uphold in this budget. To do so would be a blunder for Newsom and the Legislature the first time they faced a tough budget.