By JOHN MOORLACH | Orange County Register
The coronavirus depression gave Gov. Gavin Newsom an opportunity to advance long-needed budget reforms. Instead, as have governors before him, he kicked the can down the road.
The governor’s May revision to his January budget proposal is his first crack at dealing with the economic crisis. The proposed budget is missing real program and staffing cuts for contraction, except for “trigger cuts” pending the hope of additional federal funding (to subsidize state misspending). With an unrestricted net deficit of $213 billion, I would not claim that California has been well managed.
Also missing is the elimination of high-speed rail funding, thus continuing this boondoggle, a sign of budget-reduction insincerity.
There is no pension reform. No reform to address unfunded retiree medical liabilities. One-fifth of the funding of the budget shortfall comes from borrowings and deferrals.
And the new tax revenues penalize businesses who have incurred substantial losses.
His remedies for this disaster do not come near to addressing the calamity the governor himself detailed at his May 14 press conference: Unemployment of at least 18 percent. General Fund spending to be cut $12.5 billion. A budget deficit digging in at $54 billion.
“This will be a multi-year opportunity and effort,” the governor said. “We’re not looking to solve it overnight. We’re looking at a multi-year strategy to work through this budget.”
Actually, in Sacramento parlance, it’s just a series of “gimmicks.” There’s no real multi-year reform.
The budget document concedes, “The state faces unfunded pension obligations of $167 billion, which will continue to increase in the foreseeable future as the state’s retirement systems absorb the impact of the current recession.” Yet it calls for only “a judicious approach.” And it only recommends such half-measures as suspending CalSTRS’ annual rate increases until 2023-24.
During the Great Recession of a decade ago, in 2012 Gov. Jerry Brown passed the Public Employees’ Pension Reform Act. Equivalent reform should be advanced now.
The governor’s budget proposal also doesn’t include reform of retiree medical liabilities, which amounted to $86 billion in the state’s Comprehensive Annual Financial Report for June 30, 2018. Unfortunately, Controller Betty Yee once again is late delivering a CAFR for the latest completed fiscal year, which ended back on June 30, 2019.
That was the last full fiscal year before the coronavirus hit. Those numbers are crucial as the Legislature now grapples with the new budget.
Newsom called for Congress to pass another bailout, this time to take care of the state’s shortfalls from the coronavirus. He said the $3 trillion proposal of House Speaker Nancy Pelosi, D-San Francisco, with President Trump’s signature, would eliminate the need for all the state cuts.
But even such an injection of funds, if it ever came, would not eliminate the need for long-term pension, retiree medical and other reforms. And what about the damage to the national economic structure with federal debt ballooning even more? Where does that money come from? And why should other states with more prudent fiscal policies be forced to bail out such profligate states as Illinois, New Jersey, Connecticut, Massachusetts and California?
Amazingly, the budget proposal includes $20 million to enforce Assembly Bill 5, which has killed tens of thousands of independent contractors’ jobs, from ride share drivers to translators, dancers and pet groomers.
How are Californians supposed to pick themselves up economically when the state viciously enforces an attack on the jobs in the gig economy? At his press conference, the governor even rhapsodized about how we’re all now going to use our “Zen Buddhist beginners mind” to envision a new economy of people working at home. But how is that possible with a government functionary knocking at the door to make sure someone doesn’t violate Assembly Bill 5’s convoluted restrictions?
On revenues, the highest taxing state in the nation is asked in the budget document to “limit” tax credits by $9.2 billion over three years, effectively a tax increase. During the Q&A session with reporters, speaking in muffled voices behind protective masks, Newsom was asked about even more tax increases, in particular the split-roll initiative that could be on the November ballot. It would destroy the values of commercial properties.
“I’m very mindful of that,” he said. It’s being considered along with “multiple proposals from the Senate.” And along with the Legislature, he would “look at what is most appropriate to put before voters this November.” So that pretty much infers that he and the Democratic supermajority would be pushing voters for a large tax-increase.
There’s no question the coronavirus has affected all of us. Tragically, thousands have lost their lives. Millions have lost their livelihoods. But leaders are supposed to advance not just temporary solutions to crises, but a path toward a much better future.
Now is the time to do so by putting forth comprehensive reforms, beginning with pension and retiree medical reforms that just cannot be delayed. Under the governor’s proposal, Assembly Bill 5 and higher taxes, combined with no real liability reforms, put California on a slow and excruciating path, while other states will race past us to recovery.
This article originally appeared in the Orange County Register. Read it here.