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Gavin Newsom
Gavin Newsom. (Photo: Kevin Sanders for California Globe)

Gov. Newsom’s Pea Shell Game Budget Tricks

Newsom came up with the $54 billion budget deficit by calling a modest increase a decrease

By Wayne Lusvardi, June 25, 2020 4:04 am

California’s budget is balanced only on the assumption that Nancy Pelosi’s $3 trillions bail-out is approved by Congress, including funding to bail out pensions and state operating costs.

Just as in a pea shell game, there is no way to know whether the real balance of the California budget is and if the new budget is a tax increase or tax cut.

But all the temporary budget cuts, tax increases, delayed spending, borrowing and reliance of federal funds doesn’t tell us whether there has been a net change to the 20-21 annual budget, up or down, or whether there was any $54 billion budget deficit at all. 

According to media reports, California will close the purported $54 billion general fund budget deficit gap blamed on the coronavirus epidemic with a mixture of:

  • Temporary budget cuts $2.8 billion,
  • School funding deferrals $12 billion,
  • Loans from special funds
  • Bond borrowing
  • Other federal funds $1.1 billion
  • Temporarily suspending $4.4-billions of tax credits for businesses
  • Unspecified tapping of budget reserves ($18 billion as of April 2020)

Omitted in the media reports were:

But all the temporary budget cuts, tax increases, delayed spending, borrowing and reliance of federal funds doesn’t tell us whether there has been a net change to the 2020-21 annual budget, up or down, or whether there was any $54 billion budget deficit at all.  The non-partisan Legislative Analyst’s Office (LAO) estimated the coronavirus deficit from $18 to $31 billion, which could be entirely met with reserves and some modest budget cuts. 

Here is a list of some of Gov. Newsom’s pea-shell game budget maneuvers that have obfuscated the real budget picture.

The $54 Billion Corona-virus Deficit Trick

The way Newsom came up with a $54 billion budget deficit is by calling a modest increase a decrease.  So, he calculated a loss on the $208 billion unapproved budget for 2021 instead of the $154 billion approved budget for 2020.  This is sort of like saying your wish for a $2,800 per month social security check was cut by 35 percent to $1,540, when it actually increased from $1,470 to $1,540 (+4.7 percent).  This is why the LAO has estimated the deficit much lower.  Newsome says the budget cup is 35 percent empty when it has actually been filled by about 5 percent. The Latino media also wasn’t buying this trick.

Balanced Budget Trick

According to Chriss Street, California’s budget is balanced only on the assumption that Nancy Pelosi’s $3 trillions bail-out is approved by Congress, including funding to bail out pensions and state operating costs.  Moreover, the proposed $154 billion balanced budget for 2020-2021 is ludicrous because it does little to solve the longstanding pension and retiree medical fund deficit totaling $846 billion that would gobble up about the entire general fund budget for about 5.5 years.

Temporary Tax Trick

No mention is made of the proposed temporary tax under Assembly Bill 398, “The COVID-19 Local Government and School Recovery and Relief Act,” that proposes a $275 per employee tax on large businesses for five years.

Former Howard Jarvis Association consultant Joel Fox points out that such taxes tend to become permanent taxes.  This is especially so since California voters rejected the deceptive tax-cut-sounding Proposition 13 of 2019 – The Public Preschool, K-12 and College Health and Safety Bond Act by a vote of 53 to 47 percent.  With a veto-proof Democrat majority in the legislature and the pretense of a health emergency, it is likely that AB 398 would become a permanent tax. 

Temporary School Funding Deferral Trick

Even the mainstream media caught on that deferring $12 billion in payments to public schools is mostly a pea shell game because local school districts can avoid budget cuts by borrowing or using reserves until such time as the state pays them back. In 2017, then-governor Jerry Brown paid back $32 billion of the state’s “Wall of Debt” incurred during the Mortgage Meltdown crisis, including monies borrowed from the public education account.

Compensable Budget Cuts

Reportedly, the Service Employees International Union (SEIU) has approved a 9.2 percent pay cut and the Prison Guards Union a 4.5 percent cut. But once again, this is a dodge because in 2017 such budget cuts were repaid as part of the pay down of the Wall of Debt.  But there will be no just compensation for destroying thousands of small businesses in California by Newsom’s ruinous and avoidable coronavirus policies.

Pea Shell Game

From this writer’s past experience of zero-base budgeting an entire Los Angeles County agency, I learned that one has to be an expert in a pea shell game of never letting taxpayers know whether the net effect of the budget was budget cuts or tax increases.  A budget must be balanced but it can be balanced low or balanced high.  The California budget is difficult to fathom with all the moving around of pea shells that cover up the real revised California budget picture.

In a pea shell game, it often ends up the pea is not under any of the shells. Likewise, there is no way to know for sure whether the California budget is balanced and if the new budget is a tax increase or tax cut. But from appearances, Gov. Newsom’s temporary and deferred budget cuts that will be reimbursed in the future, and supposedly temporary tax increases on businesses, look like a tax increase mainly falling on larger businesses.  The California legislature has supermajority power to make those tax increases permanent. Affected businesses will pass those tax increases onto its customers whose household budgets have been decimated by Newsom’s ruinous coronavirus policies.

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3 thoughts on “Gov. Newsom’s Pea Shell Game Budget Tricks

  1. Mr. Lusvardi,
    Thank you for this report and your astute observation. When it comes to a one party controlled state they can get away with this deceit. Again, the small business owners and their customers (us) will end up paying for this sham.

    Your summation says it all.
    “The California legislature has supermajority power to make those tax increases permanent. Affected businesses will pass those tax increases onto its customers whose household budgets have been decimated by Newsom’s ruinous coronavirus policies.”

  2. Deception is good.

    Could you imagine the horror, if residents recognize the services and protection losses coming in real terms……

    Best hope your association gates are in good order and your stash of top ramen is ample…..

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