California Legislative Analyst ‘Calls Bull’ With Newsom’s Budget Projections

Last week, California Gov. Gavin Newsom on Tuesday unveiled a $297 billion 2023-24 budget plan with a $22.5 billion projected deficit. He cut his latest budget by $3 billion in the face of a recession and a $22.5 billion deficit.

In November, the Office of the Legal Analyst reported that California’s revenues were $41 billion below expectations, likely leading to a massive $25 billion shortfall in the upcoming 2023-2024 state budget – following a $31 billion surplus? How?

Gavin Newsom (D-Fantasyland) got a real test from a legislative analyst on Friday when a non-partisan office called for more spending cuts and challenged the governor’s assertion that the state will not face a recession in the coming years. California Assembly Republican Caucus Press Statement. “Legislative Analyst Calls Bull on Newsom’s Budget Forecasts,” reads the headline.

It’s priceless.

But they are right. The Legislative Analyst’s Office did submit a report to the governor recommending other cuts and offering its solutions to the Legislature if the governor did not budge.

The LAO identifies these problem areas in Governor Newsom’s budget projections:

  • 14 dollars Billions of higher incomes
  • $3 Billions for high schools and community colleges
  • 4 dollars Deferred billion in SFEU. The Governor is proposing to the Legislature to pass a year-end balance sheet in the Special Economic Uncertainty Fund.
  • 2 dollars Billions of discretionary spending
  • $800 A million in other differences

In particular, the Office of the Legal Analyst is concerned that Governor Newsom plans to increase spending despite lower revenues. They put it a little differently: “We estimate that there is a strong possibility that revenues will be below the administration’s projections for the budget window, especially for 2022-23 and 2023-24. However, the Governor’s budget recovery proposals are implicitly placing more emphasis on revenue growth, suggesting that the administration expects revenues to be more likely to be higher, not lower, than their current projections.”

Could Gov. Newsom have a severe case of recession budget failure?

Legislative Analyst says:

“Recent budgets have allocated or planned tens of billions of dollars for one-time and temporary spending in 2021-22, 2022-23 and 2023-24. The Governor’s Budget identifies one set of recent additions that need to be cut or delayed in order to solve the budget problem. The legislature can choose very different spending decisions. To assist the Legislature in this effort, we have provided a list of major additions foreseen in recent budgets in Appendix 4 and a set of criteria for evaluating their reduction or delay in “Chapter 2″ of this report. The Legislature could apply these criteria in budgetary oversight hearings over the next few months.” The LAO report describes an “increased recession risk” and calls for the Legislature to “plan for a bigger budget challenge by defining more spending cuts,” the caucus said in a statement.

LAO said:

“As the Legislature works to resolve the budget challenge, we invite policy makers to consider the unique impact of inflation on each of the state’s major spending programs in conjunction with possible budget decisions. (see our report, Budget 2023-2024: Taking into account the impact of inflation on government programsfor more information.) “Meanwhile, economists polled by the Wall Street Journal say there is a 61% chance the economy will slide into recession over the next year,” the caucus said in a statement. “If the governor and Democratic lawmakers do not accept the reality that the economy is in distress, middle-class Californians will pay the price for their tax recklessness,” Assembly Republican Leader James Gallagher (Yuba City) said in a statement.

Here’s one area the LAO calls a problem – “new discretionary spending”: “The Governor’s Budget also includes $2 billion in discretionary spending proposals that are not currently reflected in current legislation or policy,” the LAO said.

“In addition to addressing the budget challenge, the Governor’s budget is offering $2 billion in new discretionary spending, primarily to fund capital expenditures, resources and the environment, as well as other miscellaneous program areas. Due to the lack of revenue, these new expenditures exacerbate the budget problem and require additional budgetary solutions. That is, for every dollar of new proposals, another dollar of solutions will be required. While the Legislature may share some of these priorities, it is not required to accept all or even any of the related proposals. Removing them will reduce the budget problem and the number of decisions needed.”

Assembly Republican leader James Gallagher is right, and according to a Wall Street Journal poll of economists, things are likely to get worse:

  • Economists expect GDP to stagnate this year, showing growth of just 0.2% in the fourth quarter of 2023 compared to the fourth quarter of 2022.
  • Employers are expected to cut jobs starting in the second quarter and through the end of the year.
  • Economists see high inflation and the Fed’s efforts to contain it as the main risk to the economy this year.
  • When asked which category of inflation would be the hardest to curb in 2023, a quarter of economists chose housing. Another 18% chose healthcare and another 18% chose personal services.
  • Economists in the survey expect the Fed will need to raise its benchmark federal funds rate to 5% this year, in line with central bank officials’ own projections.

The perfect storm for a recession could hit us with high inflation, high taxes, high energy costs, high food prices, large budget deficits, and now tens of thousands of large layoffs in high tech, which is another problem in which the legislators and the governor of California need it. to address. Meta, Twitter, Salesforce and now Amazon are laying off thousands of employees. The potential or early economic impact for the cities and counties in which they are located, as well as for the state, and the ripple effect they could have on startups and investment banks, looks huge.

The governor’s May 2023 budget review will be interesting.

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