Greenberg: Gavin Newsom’s Budgetary Sleight of Hand

Is Gavin Newsom eyeing the White House in 2028? California’s woke poster boy has turned the Golden State into a dystopian mess, and conservatives, independents, and anyone with a shred of common sense would and should torch his candidacy faster than a San Francisco dumpster. Here’s another reason:

More than seven hundred thousand taxpayers fled California since 2020—folks fed up with sky-high personal, business and property taxes and over $5 per gallon gas. Newsom’s earned the spot as the champion of population decline, and he thinks America wants this nationwide?

So, Newsom needs to clean up his fiscal act – one of the first order of business if to appear he’s balanced the budget and the state’s fiscal health.

The California state budget shortfall for the current fiscal year (2024-25) and the upcoming fiscal year (2025-26) has been a topic of significant debate, with claims of a “balanced budget” coming under scrutiny for potentially masking underlying financial challenges. But how can this shortfall be deceptively described as balanced? It’s a hocus-pocus budget situation.

California has faced rollercoaster financial conditions in recent years. After enjoying record surpluses during the COVID-19 pandemic (e.g., a reported $31 billion surplus in 2022-23), the state encountered a sharp reversal due to declining revenues, particularly from capital gains taxes tied to a faltering stock market, a slowing tech sector. And of course, population loss. Initial deficit projections for 2024-25 ranged widely. The Legislative Analyst’s Office (LAO) estimated a shortfall as high as $68 billion in November 2023, later revised down to $55 billion by mid-2024, while Newsom’s administration cited allegedly lower figures, such as $38 billion in January 2024. For the coming 2025-26, the LAO projected a modest $2 billion deficit but warned of growing multiyear deficits reaching $30 billion annually by 2028-29 if spending trends continue.

Yet a few months ago, Newsom presented a $322.3 billion budget for 2025-26, and proudly claimed it was “balanced” with no deficit. This claim has raised questions about whether the budget’s presentation obscures ongoing fiscal challenges.

The shortfall may be deceptively called “balanced.”

Several budgetary tactics and framing strategies could contribute to the perception of a balanced budget despite underlying shortfalls. For example, a reliance on temporary solutions. The current 2024-25 budget, finalized in June 2024, addressed a $47 billion shortfall over three years (2022-23 to 2024-25) using a mix of $13.6 billion in temporary additional revenue, $6 billion from reserves, and $3.1 billion in funding delays. For 2025-26, Mr. Newsom’s proposal continues this tactic. We can argue it’s deceptive because these are one-time fixes. The LAO suggesting future shortfalls are being deferred rather than resolved.

California has $17 billion in reserves, including $11 billion in the Budget Stabilization Account (or the “Rainy Day Fund”) and $4.5 billion in the “Special Fund for Economic Uncertainties.” The state can withdraw under emergency rules despite “no current deficit.” Added danger: dipping into state reserves can technically balance a budget today, but it depletes resources for future economic downturns. The LAO warns that reserves alone can’t cover projected $20–30 billion annual deficits starting in 2026-27, implying the “balance” is temporary and masks a looming problem.

Mr. Newsom’s January 2025 proposal claims there will be $16.5 billion in additional revenue over three years due to “better-than-expected economic performance” and stock market gains. This contrasts with the LAO’s more cautious outlook, which assumes revenues won’t keep pace with spending growth.

Another method for Newsom to re-state the state’s fiscal health: Past budgets have used tactics like delaying Medi-Cal payments or counting unspent prior-year funds as savings. For 2025-26, Newsom’s plan includes no new taxes but instead leverages internal borrowing (e.g., from special funds) and assumes federal reimbursement for $2.5 billion in wildfire costs—funds that aren’t guaranteed. This of course creates a balanced bottom line on paper but shifts hope to future years undermining true fiscal stability. It’s deceptive if it implies long-term solvency rather than a snapshot propped up by temporary measures.

The “balanced budget” claim relies on a narrow definition; without structural reforms—like revising tax revenue reliance on high earners or curbing out of control spending—Newsom, and the state, risk continuous whiplash between surpluses and deficits, as seen in recent years.