PD Editorial: California must spend its windfall wisely
Gov. Gavin Newsom and California lawmakers got an early holiday gift — yet another 11-figure budget surplus.
The state’s nonpartisan legislative analyst is forecasting a surplus of at least $10 billion and as much as $60 billion for the fiscal year that starts on July 1. The most likely scenario, Legislative Analyst Gabriel Petek said, is a $31 billion surplus.
While the windfall isn’t as large as last year’s $76 billion, it’s still a gusher of money.
California’s overflowing coffers reflect a generally strong economy, despite rising inflation and supply chain disruptions. Stock prices have nearly doubled from their pandemic lows in early 2020, even after a Black Friday sell-off following the discovery of a new coronavirus variant. Meanwhile, retail sales posted double-digit growth in 2021.
For the state treasury, all that economic activity feeds two primary sources of revenue: capital gains taxes and sales taxes.
The challenge for the governor and state lawmakers is managing the money wisely.
Newsom must present his 2022-23 budget proposal in January, but the final spending isn’t due until June 15.
A substantial portion of the revenue must, per the state constitution, be earmarked for public schools and community colleges. It’s also likely that the state will be return some of the money to taxpayers to comply with another constitutional provision, the voter-approved Gann spending limit.
In this year’s budget, taxpayers earning up to $75,000 a year received a cumulative $12 billion in tax rebates. Assembly Speaker Anthony Rendon says he wants more “one-time investments,” suggesting that he favors extending payments for taxpayers at the lower end of the income scale.
That would still leave billions of dollars for discretionary spending.
There is no shortage of proposals for spending the state’s surplus. In a column that ran on these pages last week, Dan Walters of CalMatters suggested the state pay off a loan from the federal government that helped cover unemployment payments during the Great Recession. Doing so would lift a burden off employers trying to stay afloat during the pandemic, he wrote.
George Skelton, a Los Angeles Times columnist, offers his own recommendations: pay cash up front, instead of borrowing, for public works projects; buy wildfire fighting equipment; invest in desalination and aquifer cleanup projects to boost water supplies; build housing for the homeless; and suspend auto registration fees so motorists can more easily afford high gas prices.
All of these are worthy ideas, and we would like to offer a couple of our own.
First, save some of the windfall. When the economy goes in the tank — and one day it will — tax revenue will dry up just as more people qualify for safety net services. The state has been building a rainy day reserve fund since Great Recession, when deficits climbed as high as $27 billion. Some of this year’s bonanza should go into the reserve.
This also is a golden opportunity to pay down some of California’s debt for state employee pensions and retiree health care. The state’s public employee and teacher pension funds had big years, fueled by double-digit returns on stock investments, but the state still has tens of billions of dollars in unfunded liabilities. Paying them down now would save money in the long run.
California is heading into a third straight year of multibillion dollar surpluses. For lawmakers, shoveling money out the door is easy. Managing the windfall prudently is the real challenge.
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