In summary
The California Treasury is awash in cash, and the Democrats who dominate Capitol Hill must now decide how to handle this cornucopia.
Read this article in English.
During the last quarter century, when income taxes came to dominate the revenue stream of state government and when a relative handful of wealthy Californians paid most of those taxes, a syndrome called “volatility” plagued the state budget.
When the economy was booming and those elite taxpayers were seeing big returns on their investments, the money went into the state treasury, allowing the governor and legislators to increase spending. But when the economy cooled, revenues fell, sometimes sharply, and the budget bled to death.
A decade ago, newly elected Governor Jerry Brown persuaded voters to create what was called a “rainy day fund” to protect against economic downturns.
The state reserves have grown immensely since then. Even the COVID-19 pandemic had little negative impact on income, as wealthy taxpayers’ incomes were generally unaffected. If anything, the revenue stream has accelerated, providing tens of billions of dollars in revenue beyond what is needed to maintain current programs and services.
What to do with the extra money is now a point of contention among the dominant Democrats on Capitol Hill.
Should they meet the demands of progressive activists who want to transform California into a European-style welfare state?
Should they be conservative by increasing reserves, reducing debt, and/or making one-time commitments, such as public works projects, to minimize permanent commitments?
Or should they return at least some of the money to the taxpayers, though not necessarily to the wealthy who provided the bounty?
Those questions come up again as the Capitol begins a six-week race to June 15, when a new budget must be completed.
As Gov. Gavin Newsom finalizes his May 15 budget review, it’s obvious he will project a surplus greater than $29 billion which you initially mentioned in January.
How much bigger? Last week, Democratic lawmakers estimated that the general fund surplus could reach a staggering $68 billion, and that’s not counting additional money, perhaps as much as $37 billion, that, by law, must be spent on public education. .
Newsom and legislative leaders agree that at least some of the extra money should be in the form of no-strings-attached grants to California families, but there is no agreement on how much or who would qualify, and would not qualify for election-year payments.
“We are ready to act as soon as the governor joins us in supporting a plan that provides greater relief to California families,” the two top leaders of the Legislature, the president pro tempore of the Senate, said in a joint statement. Toni Atkins, and Assembly Speaker Anthony Rendon.
Learn more about the legislators mentioned in this story
State Assembly, District 63 (South Gate)
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How he voted 2019-2020
Liberal
Conservative
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District 63 Demographics
Race/Ethnicity
Latino
76%
White
10%
Asian
6%
Black
7%
Multi-race
1%
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Voter Registration
To the
56%
GOP
14%
No party
24%
Other
6%
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Campaign Contributions
Asm. Anthony Rendon has taken at least
$2.7 million
from the Labor
sector since he was elected to the legislature. That represents
27%
of his total campaign contributions.
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State Senate, District 39 (San Diego)
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How she voted 2019-2020
Liberal
Conservative
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District 39 Demographics
Race/Ethnicity
Latino
19%
White
56%
Asian
16%
Black
5%
Multi-race
4%
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Voter Registration
To the
44%
GOP
23%
No party
27%
Other
4%
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Campaign Contributions
Sen. Toni Atkins has taken at least
$1.8 million
from the Labor
sector since she was elected to the legislature. That represents
20%
of her total campaign contributions.
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Meanwhile, Legislature budget analyst Gabe Petek warns that ever-increasing revenues will mean ever-tightening legal requirements to funnel surpluses into a few categories, including refunds to taxpayers, instead of spending them. That is due to Gann Limit , a ballot measure that voters approved in 1979, with the support of Brown during his first term as governor. Therefore, Petek advised, the most prudent step would be to build reserves so that ongoing state services could be protected from diversions of Gann Limit.
Petek said his staff looked at 10,000 possible revenue scenarios and “in 95% of our simulations, the state found a budget problem for 2025-26. In particular, the likelihood of a budget problem is largely impervious to the future path of state tax revenues.”
Petek’s advice is anathema to spending-oriented lawmakers, and some want to respond by repealing the Gann Limit.
However, that would require a voter-approved constitutional amendment, so, at least in the short term, Newsom and lawmakers must obey the Gann Limit as they decide how to handle unprecedented cash flow.
This article was originally published by CalMatters.
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