With California in lockdown since mid-March, most businesses have ground to a halt, which also ground sales tax revenue to a halt. The Public Policy Institute of California just published an article showing that California’s budget reserves aren’t adequate for even a moderate downturn, much less a severe one.
In “The Coronavirus Pandemic Will Test the State’s Budget Reserves,” the PPIC says, “a long and/or severe recession like the early 1980s oil shock (which lasted four years), or the early 1990s slump and the Great Recession—both of which were much more severe and lasted five years—would create large budget gaps and require policymakers to make difficult decisions.”
However, the PPIC found that the state’s reserve balance of approximately $17.9 billion is large enough to withstand a mild recession such as the dot-com bust in the early 2000s.
“Governor Newsom has requested additional federal assistance, including flexible aid to state and local governments, a further extension of unemployment insurance benefits, and expanded support for safety net programs, small businesses, K–12 and higher education systems, childcare, and broadband.”
However, the Department of Finance is drafting a “workload” budget for the May Revision expected to be greatly modified when it is enacted in June. When the governor presented his budget in January, no states were under lockdown.
The budget revision will have to dramatically limit spending increases as the state’s safety net programs ramp up with increased demand. “The legislature will revisit the budget for an “August Revision” that reflects changes in the state’s financial condition,” the PPIC said.
Remember, in January, Governor Gavin Newsom’s 2020 budget increased overall spending to a historic high of $222 billion, California Globe reported. Newsom’s push to expand Medi-Cal to more illegal immigrants could be problematic, as expanding such benefits have already made it more difficult to provide health care services for current Medi-Cal enrollees. And Newsom announced last week he is providing illegal immigrants with coronavirus federal stimulus funding.
As California shifted from a strong manufacturing economy to a service economy, the shift also went from essential services to a majority of non-essential: ‘The pandemic is increasing the need for some goods and services (such as health care) and reducing demand for others (such as travel- and entertainment-related services), so the near-term economic consequences are more serious in some sectors than in others,” the PPIC reported in a March article.
“Recent forecasts have identified several ‘at risk’ sectors: accommodations and food service; arts, entertainment, and recreation; administrative and support services, especially employment services; mining and oil/gas extraction; transportation and warehousing; and agriculture (UCLA Anderson and Moody’s Analytics). Shocks in these industries will be driven by reduced local demand, as well as slowing of trade in and out of California’s ports (especially relevant for the transportation and warehousing and agriculture sectors).”
Read both articles at the PPIC:
and re-read about Gov. Newsom’s 2020 budget, and his budget promises and expansions.