California must limit spending – Orange County Register

Last year’s $100 billion surplus will be blown out to sea with the Santa Ana winds. That’s the warning published last week in “California’s Fiscal Outlook” by the nonpartisan Office of the Legislative Analyst, which advises the state government.

“Specifically, lower revenue is expected to result in a $25 billion deficit” for this fiscal year, LAO reported. But even that “understates the real fiscal problem in inflation-adjusted terms.”

If this scenario plays out, the state’s $23 billion rainy day fund would be depleted. To make matters worse, the numbers above are projected even assuming no recession.

“Based on historical experience, if a recession were to occur soon, revenues could be $30 billion to $50 billion lower than our revenue forecast ‘for fiscal year 2023-24,'” says LAO.

“One word: Oops! We tried to tell them,” former senator John Moorlach told us. “Even Governor Jerry Brown took a pretty cautious approach to his budgets,” during his tenure from 2011 to 2019. “If I had been governor and had had a magic wand, that $100 billion surplus would have used to reimburse the state pension plans”, which are currently in the red by 150 billion dollars.

Moorlach said the biggest problem with the budget is a state tax structure “totally dependent on the well-being of the economy” because it relies heavily on personal income tax revenue. “When there’s a downturn, Silicon Valley stocks lose value and we don’t have capital gains. People get nervous about investing. Taxes are dropping precipitously,” Moorlach said.

At this point, shares of big companies like Facebook have crashed by more than two-thirds in value over the past 15 months. Facebook just laid off 11,000 workers, including more than 2,300 in California.

The question now is how the legislature and Governor Gavin Newsom will react. The last major downturn, the subprime mortgage meltdown of 2007-2010, led Governor Arnold Schwarzenegger in 2009 to sign a record $13 billion tax increase.

Tax hikes would now be the worst idea, as many businesses in recent years have fled the state’s ultra-high tax environment. California voters have also shown resistance to steep tax increases in recent years, with recent proposals to create a split property tax system and raise taxes on the wealthy to subsidize purchases of burning electric vehicles.

Moorlach also recalled how during that last recession while he was supervisor of Orange County, the state stole revenues from county and city governments and never paid them back. It could easily happen again. “It’s very dysfunctional,” he said. “They build their reserve funds, but have them taken by the state. We do not share fortune, but we share misfortune. »

Even if the recession is short, there will be a lot of bad luck.

Sacramento needs to stop pushing itself and learn to exercise some degree of fiscal discipline to move forward.