On Tuesday, Gov. Gavin Newsom unveiled his $297 billion budget proposal for the 2023-24 fiscal year. A lot is sure to change between now and the May Revise, and then again with the finalized budget. But here are some takeaways from the governor’s budget plan:
Unlike in prior years, Newsom’s budget proposal projects a significant budget shortfall, and therefore a $22.5 billion deficit that needs to be planned around.
The proposal notably does not assume a recession will occur. California’s Legislative Analyst Gabriel Petek noted in December that “should one occur, revenues easily could be another $30 billion to $50 billion lower.”
On the favorable side, Newsom’s budget proposal for the time being does not call for withdrawing money from the state’s reserve funds to cover the anticipated budget shortfall.
“We’re in a very volatile moment,” Newsom said. “As a consequence of that, we’re not touching the reserves, because we have a wait-and-see approach to this budget.”
The state has reserves of $35.6 billion, which could be useful in the event of a recession. Newsom is right to hold off on tapping those hard-earned reserves until it is absolutely necessary to do so.
For the time being, Newsom proposes deferring or cutting back spending on various government programs. This includes holding back spending on local rail projects.
Newsom must now learn to say “No” to both his Democratic colleagues in the Legislature who will want the state to spend more on more things and special interest groups that want their pet projects funded.
The governor and the California Legislature must prioritize needs rather than wants so long as there is this lingering economic uncertainty. Everyone can agree these are particularly strange economic times.
Now is not the time for spending sprees that risk necessitating painful and abrupt cuts down the road, or painful and abrupt tax increases to paper over the fiscal failings of the state.
This new situation brings to mind the state’s failure to take advantage of the good financial years to invest in things that are still as needed as ever, including water storage projects. Instead of funding boondoggles like the high-speed rail project, Newsom could show leadership by making water infrastructure a top focus of any new discretionary spending.
Over the next few months, we can only hope the Legislature proceeds more deliberately and transparently in figuring out the best path forward. Last year’s budget process was notable for minimal hearings and rushed budget trailer bills.
“Consensus has been lost. Not having a conference committee has recently become a habit. Opposing viewpoints have been cut out of the process. This year, even rank-and-file Democrats were cut out,” wrote then-Sen. Jim Nielsen, R-Yolo County, in these pages in August. “There are fewer public hearings, and members of the public who want to speak generally are limited to stating their name and specifying their support or opposition.”
That must change.
