Analysts Question Newsom's Optimistic Take on California's Budget

Gavin Newsom (Jerod Harris/Getty Images for Vox Media)
January 12, 2024

California governor Gavin Newsom (D.) on Wednesday tried to paint a bullish picture of his state's fiscal situation, projecting a $37.9 budget shortfall in contrast to the $68 billion predicted by the government budget watchdog. But state analysts warn the governor may be overly optimistic.

"There is always a lot of uncertainty when it comes to estimating California's revenues—as the governor indicated—but our number [$68 billion] represents our best estimate, which we stand by," Gabriel Petek, an analyst with California's budget watchdog agency, said in a statement.

Newsom's estimates of forthcoming tax revenues "fall on the optimistic side of what we consider most plausible," Petek said, noting that they also assume the State Legislature will approve certain spending reductions that are in lawmakers', not Newsom's, hands.

The governor's sunnier take comes as he builds his national profile ahead of a potential 2028 presidential run—largely by pitching the Golden State as a model of Democratic governance despite its well-chronicled homeless crisis, increases in violent crime, and mass exodus of residents.

"He's just delusional about the whole thing," said Lance Christensen, vice president of policy at the California Policy Center and a former staffer both in the Legislature and at the state's Department of Finance. "It doesn't pencil out, and he's really optimistic if he thinks the revenues are going to come in."

The governor portrayed the deficit as an inevitable part of California's boom-and-bust budget cycles. The state relies almost totally on wealthy taxpayers and capital gains for its revenue—making its coffers more vulnerable to economic downturns and stock market slides.

Still, after massively increasing state expenditures year over year, Newsom's initial $291.6 billion spending plan, down from last year's $308 billion budget, marks the first time he has proposed a cut since becoming governor. The plan includes using more than $13 billion from the state's reserves to make up some of the shortfall, as well as some cuts and delays and deferrals to spending. The state will go ahead with its plan to grant Medicaid coverage to illegal immigrants.

His proposals haven't appeased state Republicans, who blame the shortfall on Newsom's spending history and stress that in the past two years, the governor and other Sacramento Democrats turned a nearly $100 billion surplus into deficits.

"Years of out-of-control spending by the governor and the legislative Democrats have added billions of dollars of new ongoing costs," said Assemblyman Vince Fong (R.), vice chairman of the Assembly's budget committee. "Until the governor takes control of the unsustainable spending, it is premature to tap the rainy day fund."

Even with cuts, Newsom's proposed budget is more than double the state's spending a decade ago, although the state's population is roughly the same.