The largest blue state is ready to invest in its people
California Governor Gavin Newsom’s budget review, released late last week, contained two eye-popping numbers. The first is the very size of the proposed budget: $300.7 billion. This represents a doubling of the state budget in the last eight yearsand makes California’s state budget larger than the national budgets of all but a handful of countries on earth.
The second is the size of the projected revenue surplus this year: $97.5 billion. That’s a number simply unheard of in state politics, and a dramatic turnaround in a decade ago when California was running multi-billion dollar deficits and its basket finances were seen as a harbinger of what happens when states promise big programs but also place strict limits on the ability to raise taxes. At the time, the Golden State needed to cut vital expenses on everything from schools to road repairs. Among other consequences, California ended up spend less per student than most other states. In 2012, it was shockingly ranked 47th out of 50 states; by 2022, he had improved to 17th in the countryside.
California’s reversal of fortunes and its newfound ability to reinvest in its human and physical infrastructure has multiple causes: voter aversion to fiscal measures has waned considerably in recent years, Silicon Valley has proven to be a never-ending boon to creating taxable wealth for the state, the stock market, despite its recent slump, has generated huge capital gains for wealthy Californians, and the tranche of stimulus and countermeasures the pandemic of recent years has flooded states and cities across America with cash.
Newsom is aware that the history of the state is awash with examples of breathtaking booms followed by brutal busts – lately there was the bursting of the dot-com bubble in 2000, and another after the housing market crashed in 2008. He is also aware that if the stock market decline intensifies and the economy is pushed into a recession by rising interest rates, the fiscal fortunes of the California could reverse with staggering speed. This has happened before – which is part of why then-Governor Jerry Brown in the mid-2010s was so determined to use the right budget period not to create large-scale spending programs, but to increase bad day funds for the next downturn. .
To protect the state against these likely headwinds Newsom also offered to set aside more than $37 billion of the excess in reserves— the State rainy day fund, a school stabilization fund, an operating reserve and a safety net for social services. Yet that still leaves a huge amount of money for investment in social and environmental infrastructure, mental health courts, health systems, homeless services, schools, and more. It also leaves money for the state to bolster its abortion services in anticipation of a likely reversal of Roe vs. Wadeand the arrival of large numbers of women from anti-choice states who may soon seek abortions in California.
During the Trump era, California’s political system moved closer and closer to that of a nation-state rather than just a state among states. It hasn’t quite printed its own money or officially created its own immigration system, but it has begun to establish foreign relations with other states regarding environmental rules and climate change interventions. , specifically ; and he pushed back as hard as possible on the hard right shift on immigration at the federal level.
Now, in the Biden era, California is flexing its massive fiscal muscle, showing what a state with vast resources and progressive political leadership can do if it decides to reform. This year, Newsom is offering more than $11 billion in targeted tax refunds to lessen the impact of high inflation. This includes rebates for vehicle owners who pay sky-high gas bills at the pump and $2.7 billion in emergency rental assistance – a vital response in a state experiencing the worst housing crisis. from the country. He’s also thrown his political clout behind a billion-dollar initiative to help Californians struggling to pay their utility bills, and he’s asking for $8 billion to further develop clean energy in the state. .
None of this makes California an idyll – or anything remotely resembling it. It is plagued by a catastrophic housing and homelessness crisis, its streets are still home to tens of thousands of seriously mentally ill men and women, its air quality, despite strict environmental laws, is often dangerous, its water supply systems are fragile, large swaths of its land are vulnerable during ever-worsening fire seasons, and so on. Despite these challenges, however, California is working in good faith to act courageously to reinvent government services in a more inclusive and ambitious way.
The 2022-23 budget is bold. Assuming he wins his re-election bid in November, it will give the governor an opportunity to further reinvent governance in a state that has already radically strayed from the more conservative economic priorities that drove it in the early years. of the century.