California is not roaring back as Governor Gavin Newsom claims.
The state’s $76 billion plus surplus — fueled by one-time capital gains taxes on the likes of initial public offerings (IPOs) such as Uber, Lyft, Pinterest, and Airbnb and coupled with $27 billion in federal COVID-19 relief funds — to pay for Newsom’s infamous $100 billion relief recovery package is more aptly best described as a heroin high.
The crash will come.
As for Republicans claiming Newsom is simply trying to buy off voters in the upcoming recall election by “spending” part of the surplus by sending every Californian grossing $75,000 or less $600 apiece they’re playing fast and loose with the facts and history as well.
The 1979 Gann Initiative — adopted by voters by a 70 percent plus margin and created by fiscal conservatives that Republicans claim to be — caps annual government spending increases based on population and costs of living increases.
In 1987 in the first test of an excess surplus triggered by the Gann Initiative, then Republican Gov. George Deukmejian refunded $1.1 billion or up to $236 to every taxpayer. He did not cut taxes Republicans today insist Newsom do or build up reserves.
Then in 2018 facing another surplus that exceeded the Gann limit, then Gov. Jerry Brown diverted the $16 billion excess surplus into reserve savings to buffer future economic downturns.
Republicans, who now argue Newsom should do the same thing instead of refunding part of the money, slammed Brown in 2018 for saving the $16 billion in such a manner that it avoided triggering a quarter of a cent automatic drop in state sales tax.
Perhaps the worst thing is all of the politically posturing over “California is roaring back” and Newsom’s “recall refunds” is very nicely masking some of the governor’s budget proposals that will have long-term expensive impacts.
Included are sending every 4-year-old in California to kindergarten and extending healthcare insurance to older adults living in the United States illegally.
Newsom lulling people into a false sense of California being on a new steady financial course with his bubbly rhetoric nicely dampens down serious debate across about the sustainability of some of his initiatives.
Are we really able to afford endeavors that are not designed as one-time funding initiatives?
Simply putting a “sunset” on multiple-year spending of surplus money is a disingenuous ploy. Once a program that is viewed as an entitlement establishes a beachhead among beneficiaries, it becomes extremely hard if not impossible to not extend them.
Democrats and Republicans are simply playing to their base.
It’s much easier to do than having serious and frank discussions about fixing the roller coaster boom and bust state revenue cycle without trying to send the state back into the years prior to Proposition 13 when property taxes were ravaging taxpayer budgets with all the subtlety of piranhas in a feeding frenzy.
But here’s the wild card. History has shown if you hit Californians hard enough in the pocketbook or their sense of fairness, they will ignore party lines and push back.
The November 2020 election and the rejection of everything from extending rent control and stripping commercial property of Proposition 13 protection to a plan to re-impose special treatment of people based on race, sex, color and nation of origin when it came to public educating, employment, and contracting should have signaled even to political hacks when push comes to shove Californians aren’t political lemmings.
So why not do what Dianne Feinstein did shortly after becoming mayor of San Francisco in the aftermath of the assassination of George Moscone in 1978?
Businesses were fleeing the city. The working class was being squeezed.
Feinstein got business and political leaders together to find a solution. Frank feedback was given by business leaders that understood the need for taxes and the services that cities provided to support their business and the needs of their employees.
They not only identified taxes that were causing businesses to flee but they also recommended taxes to replace revenue.
In other words, they re-imagined how San Francisco taxed businesses instead of adding on or taking them away willy-nilly.
In the ensuing years after the recommended business tax changes were made, the loss of corporate employers was reversed and San Francisco’s city revenue was recording healthy annual gains. Of course, that has since faded as politicians resorted to their primal taxing instincts.
There is also the arrow across the bow fired by the independent legislative analyst’s office that took apart Newsom’s spending spree and duly noted it includes dipping into $8.3 billion from spending reserves Brown created with the last revenue boom and swimming off $3.8 billion from other sources.
Newsom isn’t satisfied with just showering Californians with $100 billion in extra spending that a one-time surplus jacked up by federal stimulus money is allowing but to also tap into rainy day funds to the tune of $8.3 billion when the governor is beating his chest and channel Lee Iacocca’s “we’re coming back line” when there is not a cloud in sight.
By the way, did anyone notice the legislative analyst’s office on Monday just days after Santa Newsom announced his proposed spending spree put the projected surplus at $38 billion and not $76 billion?
In short Newsom is passing on a golden opportunity to push for a long-range fix to the state’s cyclical revenue woes while sitting atop a record breaking $76 billion surplus — or is that a $38 billion surplus?
That, of course, requires thinking long-range for lasting dividends instead of short-term political profits,
If you don’t think that tax increases aren’t still a high priority, the budget surplus has not snuffed talks of tax increases in the California Legislature that has instead moved them to the back burner.
Keep in mind in 2018 when we last had a “record surplus” the money was gone by March 2020 when Newsom was warning of an impending record $56 billion budget deficit.
The goal should be to end California’s wildly careening down the freeway either heading full speed ahead at 100 mph with nothing in its path or steering toward going off the proverbial financial cliff.
California needs to keep going forward at a steady and safe speed while keeping spending within the lines.
The best time to make adjustments to accomplish such a goal is when the state is flush with revenue. Restructuring — or tearing down how we tax for government services and then rebuilding how we tax — is best done when California is flush with cash.
California can’t keep on gambling with its future hoping for lucrative IPOs to fill the state treasury
As things now stand Newsom will at the least simply become the latest governor to fail to position California state government so it can keep moving forward without being whipped around by revenues that come and go based on one-time taxation models.
In the worst-case scenario if he’s as far off on the size of the surplus that the independent legislative analyst’s office claims, he could be the governor that sends California into a sea of red while proclaiming the Golden State is roaring back.