It’s not just the federal government with major budget deficit problems. When he leaves office in 19 months, Gov. Gavin Newsom will bequeath to his successor endemic state budget deficits.
The nonpartisan Legislative Analyst’s Office gave us the numbers for legislators to use as they work toward the June 15 constitutional deadline for crafting a state budget for fiscal year 2025-26, which begins July 1. The Multiyear Budget Outlook found “the state is likely to face persistent future deficits,” ranging from $10 billion to $20 billion through 2028-29.
In announcing his May Revision to his January budget proposal, to reduce a $12 billion deficit Newsom called for cuts to Medi-Cal and other programs. He also blamed President Trump’s tariffs for tanking the stock market, thus reducing revenues. We opposed those tariffs. But Trump since has backed off, what’s being called the TACO policy: Trump Always Chickens Out. And despite the market gyrations, since Trump took office on Jan. 20, the S&P 500 is down less than 1%.
“Newsom and the Department of Finance squandered the resources needed to prepare for this train wreck,” John Moorlach told us. Currently a senior fellow at the California Policy Center, he was a state senator, including during Newsom’s first two years in office.
He pointed to the LAO’s May 2019 report on Newsom’s revision of his first budget, which found spending “is nearing the sustainable limit…. Larger discretionary reserves are warranted at this time… Now is the time for countercyclical fiscal policies.” Countercyclical means paying down debt during the good years, so debt payments are lower in the bad years
“Either Newsom believed that down years were not in his future, or he thought token efforts to reduce debts would do the trick,” Moorlach said. He cited two big errors. First was not modifying state retiree medical formulas, called Other Post-Employment Benefits. That boosted OPEB’s liability to $85.18 billion in 2024, up $2.77 billion in one year, according to Controller Malia Cohen’s report last August.
The second error was the excessive borrowing from the federal government for the Unemployment Insurance fund, mainly due to massive fraud during COVID-19. The Employment Development Department’s May report pegged the 2025 loan balance at $23.2 billion, rising to $23.7 by the end of 2026, as Newsom leaves office. This is paid for with higher taxes taken from every employee’s paycheck.
Unlike the federal government, the state can’t just print money. Newsom’s main legacy is fiscal recklessness.
