Gavin Newsom has been waiting eight years in the wings in Sacramento for his chance to lead California’s state government. And many Democrats across the state have been waiting almost as long to tap the big revenue surpluses that Gov. Jerry Brown routinely plowed into reserves and debt payments.
On Thursday, Newsom unveiled his first state budget, and he planted himself somewhere in the gap between Brown and legislative Democrats. He echoed his predecessor’s caution about the future, yet boosted funding for a slew of Democratic priorities, most notably education, housing and the safety net. It marked a promising start for the new governor, a combination of reassuring fiscal prudence and a recognition of major unmet needs.
Brown was known for low-balling the estimates for state revenue, helping to drive up surpluses as the state’s economy grew. Newsom hewed closer to the moderate line taken by the state’s legislative analyst, with one notable exception.
Given the real risks of a recession in the next few years, the state can’t count on the road into the future being paved with surpluses.
By the new governor’s calculation, the state will have a $21.4-billion surplus by the end of the next fiscal year, which starts July 1. That’s considerably larger than the number-crunchers at the Legislative Analyst’s Office predicted just two months ago, and here is where Newsom made his most aggressive budget move. Much of the increase is based on the assumption that Medi-Cal enrollment will be about 1% lower than previously expected, resulting in billions of dollars in savings.
Here’s hoping he is right about that. How many Californians are enrolled in Medi-Cal, and consequently how much the program costs the state, is a function of how many residents are impoverished. Despite the rebounding economy, the state’s Medi-Cal rolls have remained stubbornly large — roughly 33% of the population is covered by the program 10 years into the post-recession recovery. That’s a scandalous measure of the state’s inability to lift people out of poverty.
The savings in Medi-Cal are vital to Newsom’s quest to increase spending on progressive Democrats’ priorities while continuing to shore up the state’s finances.
Newsom would effectively dedicate the bulk of the surplus — $13.6 billion — to paying off the last of the “wall of debt” the state accumulated during the mid-2000s, expanding the state’s reserves and trimming the unfunded liabilities in the two major state pension plans for public employees. That’s a prudent use of state dollars, and the sort of thing Brown made his top priority.
The rest, though, would finance or make down payments on a series of ambitious initiatives to aid low- and moderate-income Californians. The proposals read like a wish list of programs and projects that Democratic lawmakers sought in recent years, only to be reined in by Brown.
Among these are proposals to more than double the tax credit for the working poor, raise welfare benefits and help poor families with young children; increase spending on public schools and help school districts cover their hefty pension obligations; devote billions of dollars to ending homelessness and addressing mental-health issues; provide year-round preschool for all lower-income children and make full-day kindergarten available across the state; pour more state dollars into affordable housing and spur local governments to speed approval of new units near transit stops; extend Medi-Cal to all young adults regardless of immigration status and increase insurance subsidies for people not covered by an employer’s health plan; provide more aid to fire-stricken communities and bolster the state’s ability to resond to emergencies; improve the state’s paid family leave benefits; and put an additional $1.4 billion into higher education.
The goals are the right ones, but it’s crucial that the state not make promises it can’t keep over the long run. Newsom noted that the vast majority of the spending he’s proposed from the surplus would be for one-time needs, such as upgraded day-care centers and classrooms, rather than ongoing obligations, such as new services. He also has sought novel ways to fund some of his proposals; for example, the larger earned income tax credit would be financed by conforming state tax law to the changes Congress made in federal taxes, which would boost state revenue. Of course, that’s just a way to shift money from high-income taxpayers to low-income ones.
Newsom’s concern about future revenue and liabilities is welcome, as is his channeling of Brown’s devotion to paying down debt. But his proposal is just the start of the process. By seeking so much new spending, the new governor may inspire a bidding war in Sacramento over long-suppressed Democratic priorities. Given the real risks of a recession in the next few years, the state can’t count on the road into the future being paved with surpluses.
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