California’s Red Ink is Negatively Impacting Municipalities Large and Small

The State of California is hemorrhaging red ink with a massive budget shortfall. The non-partisan Legislative Analyst Office estimates the deficit at $73 billion; Governor Gavin Newsom claims to be optimistic and pegs the shortfall at $38 billion. A gap of $30 billion is more than a bit of optimism.

If the deficit is closer to the Analyst Office’s projections or any economic slowdown occurs, cities and county governments will bear the brunt. Newsom’s budget proposal, which will be modified by the legislature, includes delays to programs in behavioral health, reductions in parks and open spaces, libraries, childcare, education, and transportation, all of which will directly impact local government.

There are “reversions,” or cuts, of approximately $1 billion in various housing programs this year and $1.7 billion over the following years. Political hypocrisy should not shock anyone. We are undoubtedly in a housing crisis, and the State has mandated a specific number of affordable housing units for each city. Yet the “reversions” in housing aid result in a demand by the State of each city but pulls back needed financial assistance. 

The State’s fiscal shortfall negatively impacts municipalities large and small. I began my career in decision-making levels of Los Angeles city and county government and now reside in Rancho Mirage in the Coachella Valley. 

Los Angeles is confronting what the Los Angeles Times termed a “budget mess.” The city of nearly four million will have to freeze hiring, cut services, and raise fees. San Francisco is confronting a $245 million shortfall this year and a $555 million deficit next year. Mayor London Breed’s budget director stated, “We’re in a tough spot.” 

The Governor’s proposed budget does not include any raids on local government. Yet the legislature will explore every option before the June 15 deadline. Cities must anticipate this challenge and be proactive.

Let’s look at my hometown of Rancho Mirage (near Palm Springs), which has 18,000 residents. The Rancho Mirage City Council adopted a budget with an “assumption that the local economy will continue to thrive.” Thrive? Maybe.

No doubt local budgets will get squeezed, but let’s protect our priorities:

1)  Los Angeles has three Council members who voted against raising salaries for the Los Angeles Police Department. Anything is possible with those self-described “super progressives.” Yet budgets for police, fire, and emergency medical technicians should not be reduced. Public safety is the number one job for municipal governments.

2)  Infrastructure is never sexy but always vital. The state deficit delayed an $8 million grant to Palm Desert for flood retention basins from the State’s Regional Early Action Planning (REAP) program. Delaying infrastructure programs recalls the old “pay me now or pay me later” television ad. Look for cities to mobilize and lobby their state representatives to protect critical funding to resolve problems today and minimize damage tomorrow.

3) The super-majority Democratic California legislature is never termed as pro-business. Yet local governments depend on revenue from the sales and bed tax/transit occupancy tax. Stubborn inflation and the work-at-home sea change have spiked office vacancies, and the ripple effect has been vacant storefronts and retail uses. Local governments should engage with their local business community to retain existing businesses while attracting and encouraging new ones. 

Despite California’s budget woes, special interests continue to push for more funding. Newsom’s proposed budget allocates $22,850 per student, yet California Now is pressing for an additional $23 billion annually in education spending. Look for the potent teacher’s union to flex its political muscles.

Newsom’s proposed budget is misguided in two areas. 

The budget proposal delays the minimum wage increase for healthcare workers. What is wrong with the picture when fast food workers enjoy a state-mandated wage increase but are not essential healthcare employees? Whether at Eisenhower Hospital in the Coachella Valley, Cedars-Sinai in Los Angeles, or elsewhere, balancing the budget on the backs of historically underpaid critical workers is counterproductive to the health of every Californian.

Second, the bullet train is a massive vacuum sucking public dollars. The Governor’s budget allocates $4.2 billion to continue building the 120-mile segment from Madera to north of Bakersfield. Is this the greatest boondoggle in California history?  

California imposes more than enough taxes and regulations. Yet State Controller Malia Cohen has set her sights on Shohei Ohtani, the baseball wunderkind with a massive $700 million contract with the Los Angeles Dodgers. Ohtani deferred $680 million in salary until 2034-43. Controller Cohen has called on the United States Congress to mandate Ohtani pay taxes in California even if he returns to Japan, with California’s tentacles reaching Tokyo.

You can check out of California, but you can never leave.