68 billion, yes with a “b” that is California’s projected budget shortfall for next fiscal year. That is a big problem for our governor. To give you an idea of just how bad it is, our entire rainy-day fund will only cover about 2/3 of the shortfall. So draconian cuts will be needed/required. Unlike the federal budget, the state must balance its budget. True, they can and do use voodoo accounting tricks, but you can only do that for so long. One trick CA used once was to pay their employees on July 1st rather than June 30th , the last day of the fiscal year, essentially pushing the payment forward a year.
Then came the Covid 19 windfall money. The federal government gave lots of cash to support state and local governments affected by the shutdown and as a result, because flush with cash. Folks also got stir crazy and decided to re-do their landscaping or the interior/exterior of their dwellings. The Home Depot, Green Acre’s, Lowe’s, and Costco had lines miles long each day, let alone on weekends.
While this was great, as usual, the government thought it would never stop. It did.
CA you see has had a steady stream of people leaving it for decades. Ditto with corporations and small business closing. Elon Musk, who most would think would be revered and welcomed in CA was essentially run off.
Now some will point out that we added jobs in California for so many years, even during the Trump administration…. they are correct. But there is a caveat. Most of those jobs were retail, minimum wage type jobs, or government ones. The former don’t really help as minimum wage employees don’t provide much stimulation for the economy, as most are on a form of assistance or not a head of household earner. The latter are an outflow of government monies and come with high unfunded costs like pension commitments and healthcare.
So how do we cut the 68 billion? It’s not easy at all. Gavin is going to be unpopular.
How can you cut electric vehicle subsidies/incentives when we are outlawing cars with internal combustion engines soon? Ditto on cutting incentives/subsidies for solar systems on your roof. Want to put off maintaining the roads? A judge may have something to say about that as gas tax is collected specifically for that. Even eliminating all the incentives above, its likely only several hundred million, we need 68 billion… again with a “b”.
Uncle Joe Biden may want to try to help, but if there is one thing that is bipartisan in Congress, bailing out crazy California in a budget bind isn’t one of them! Halting the high-speed rail is off the table since we have spent 15 years buying up land and suing every owner who dragged their feet. The delta tunnels? Ditto, off the table.
Closing down a government office building? Unless you are planning to turn it into a homeless housing unit, that ain’t happening. If you are in a lease, you owe the money, it’s just like a utility bill or rent payment. Just because you didn’t turn it on or were on vacation all month doesn’t mean you skip the payment.
That brings us to the big cost cutting that needs to happen. The reduction of pension/payrolls. P and P as I call them likely takes up 70% of the budget, the pension is the golden goose, and you cannot cut that. So, it comes down to cutting bodies. Terminations are not really a government thing, layoffs aren’t either. The way the contracts are negotiated, furloughs may be the only option. I remember the Friday furloughs put in place under Governor Arnold were heavily criticized but found to be legal. Also, the State doesn’t cut management. They may keep some positions unfilled for a time but ultimately, they will cut entry level positions (the lowest paying ones) and just add more to the next rung up the ladder.
Also, keep in mind that a balanced budget is required by the State Constitution, but the reality is that the governor and legislature just need to agree to call it “balanced.” In reality the math doesn’t really have to work as long as both sides agree to the smoke and mirrors employed. Look for much to be papered over or pushed into future years. Also, special funds will be looted and their contents diverted to the General Fund in exchange for IOU’s.
Barring some kind of miracle that allows Gavin to run for President and thus avoid this nightmare, he is looking at being one of the most unpopular governors in the country when he starts making tough decisions. The furloughs were hell on wheels for Arnold, will Gavin bring them back? Will he cut back on programs? If so, which ones? CA is the liberal mecca for green energy spending, try to put the brakes on that?
The man in the 68-billion-dollar hole is coming for you.
Not going to be fun…
The Chief