California’s Short-sighted Budgeting Highlights Misplaced Priorities

By Drew Mercy

Over the last twenty-five years, California’s state budget has repeatedly swung from large surpluses to large deficits.  Never has this been more stark than the change from 2023 to 2024.

Last year, the governor and other state leaders touted the $97 billion surplus as proof the California way of doing business was the way of the future, with Governor Newsom touring the nation to spread that message.

Just a few months later, the state is facing either a $37 billion or $68 billion deficit depending on whose numbers are more accurate.

Soundbite media makes it very easy to pin blame on whomever one chooses to blame for most of our ills be it the pandemic response or a current or former president or governor.  The truth is a little more complicated and there’s plenty of responsibility to go around.

California’s tax and revenue system guarantees we’re in an unending cycle of surplus-to-deficit and back again.  The state is too reliant on sources of tax revenue that change wildly due to economic circumstances.  However, instead of treating surpluses as one-time funds, appropriators in the Legislature have spent them to create ongoing programs that commit future budgets to the same spending levels.

On an individual level, if a salesperson received a large commission and chose to base their future monthly budgets on receiving that same large commission every month, we know that’s not going to end well.  That bonus is more wisely used for savings, or one-time projects whether for a needed home improvement or a nice family vacation.

Likewise, we would not be faced with such a large deficit this year if last year’s surplus was used wisely for reserves, needed infrastructure such as roads, reservoirs or similar projects. 

Instead, much of it was used to create more benefit programs with increasing ongoing annual costs.

If state leaders can agree to disagree on budget items, but come together to recognize the difference between reliable revenue and one-time surpluses and reserve irregular surpluses for individual projects and spending we’ll be in a much more stable position.

Drew Mercy is President of the Budget Watchdogs Newsletter and a Director of the Antelope Valley-East Kern Water Agency, California’s third largest state water contractor.