Gov. Newsom’s State Surplus Found To Be Only $38 Billion In New LAO Report

Earlier this week, the California Legislative Analyst’s Office, a non-partisan group within the California state government, found that the state budget surplus is only around $38 billion – half of the $76 billion that Governor Newsom touted in his recent $100 billion budget proposal.

According to the LAO report, Governor Gavin Newsom had included constitutionally required spending on schools and colleges, reserves, and debt payments as parts of the surplus. However, the LAO said that they don’t count them because they need to be allocated to specific purposes, thus generating tens of billions of dollars worth of differences.

“Traditionally, our office, when we estimate how much discretionary surplus there is for the legislature to allocate, we do not include that,” said California state analyst Gabe Petek on Tuesday. “I think you could defend really either definition. It’s just that we wanted to provide the readers with our traditional way of calculating the number.

“The Governor’s estimate includes constitutionally required spending on schools and community colleges, reserves, and debt payments. We do not consider these spending amounts part of the surplus because they must be allocated to specified purposes.”

The LAO also found that the Governor is using outdated budgetary tools, specifically using $12 billion in reserve withdrawals and borrowing to increase spending. The LAO instead recommends to only keep those for other difficult years to help build up money for leaner years instead of a surplus year, as well as rebuilding it’s rainy day fund, which was tapped last year due to the pandemic.

“Despite a historic surge in revenues, the governor continues to rely on budget tools from last year,” added Petek in the report. “Specifically, he uses $12 billion in reserve withdrawals and borrowing to increase spending. The state will need these tools to respond to future challenges, when federal assistance might not be as significant. We urge the Legislature not to take a step back from its track record of prudent budget management.”

Furthermore, the report noted that the 400 new proposals in the budget should be pared down to focus on a few targeted areas of greatest need rather than push money in hundreds o directions at once.

“While it’s a very large surplus, we’re not going to be able to solve the issues that all 400 proposals are trying to tackle,” noted Patek again. “If the Legislature preferred to make surer substantial progress in a few key areas, it could allocate the surplus in a more targeted manner that reflect its top priorities.”

In addition to California collecting $16 billion in revenues in excess of the state appropriations limit, these budgetary concerns paint a vastly different budgetary picture compared to Newsom’s $100 billion dollar plan, $12 billion of which will go to stimulus checks for Californians making $75,000 or less a year alone.

$38 billion and $76 billion

Newsom has done little to respond to critics since introducing his budget plan last week, only reiterating points in speeches and tweeting out the same figures and statistics he used in his proposal last week. Many times, his tweets or statements were ended by “California is roaring back” or another variant of it.

“$600 checks. Wiping away rental debt. Grants for small businesses. Universal Pre-K. Cutting the cost of college. Housing for 65,000 homeless Californians. Historic amounts to combat wildfires. CA is coming roaring back,” tweeted the Governor recently.

Meanwhile, opponents to the Governor’s budget pushed him to follow the LAO’s guidance over the budget due to the potential financial harm his budget could do without factoring everything in.

“As an analogy, it would be spending down your retirement savings with additional expenses at a time when there’s additional income coming to yourself. It’s just not fiscally responsible,” said Assemblyman Vince Fong (R-Bakersfield) on Tuesday.

Others were more blunt.

“If the Governor just continues to spend and borrow like this, then next year California is just going to be back in the red,” Carrie Atwater, a financial advisor to several Californian and Floridian lawmakers and governmental workers, explained to the Globe on Wednesday. “Surpluses are traditionally spent on paying debts and restoring crucial cuts made when the budget was last tightened, and yes, spent on a few programs to make whoever is spending it look good to the taxpayers. But not expanded out to this extent. [Newsom] is right in saying that this is historic and the largest ever, but that’s not necessarily a good thing. Fix problems first, save for the future, then spend is, well, the adult thing to do. Something else entirely is happening.”

Governor Newsom and the state legislature have until June 15th to agree on a new state budget for 2021-2022.