Sacramento debates how to spend record surplus–no talk of reducing taxes

Gov. Gavin Newsom and the Legislature are debating how to divvy up the abundance of tax receipts that the capitol is awash in.
The governor released his May budget revise last week with his proposal to spend $300.7 billion. What was projected in January as a $76 billion surplus has soared to $97.5 billion as wealthy taxpayers have flourished during the pandemic. The wealthy, the top 0.5 percent of earners, provide Sacramento with about 40% of its taxes. In good times, that results in record revenues as long as they continue to live here. When the economy sours revenues can rapidly contract. That’s the financial mess that former Gov. Jerry Brown dealt with in 2012 before the economy recovered and it became a question of how to spend the money instead of what to cut.
Inflation is running at more than 8% year-over-year thanks to slow reaction from the Federal Reserve to its low interest rates policy and the Democrat spending spree after President Joe Biden took office. Remember that they called inflation “transitory.” Couple inflation with gasoline prices hitting $6.50/gallon in California thanks to Biden’s anti-fossil fuel policies, California’s unique blend and surging demand worldwide exacerbated by the Russian invasion of Ukraine, people are looking for help. Newsom and the legislative leaders have yet to agree on how to bring some relief to California residents. One of the silly Newsom notions is to send checks to owner of every car registered in California, including electric ones. Given that the income of most electric car owners is far above average, they don’t need the money and are not buying gasoline.
It’s people who need to drive who are paying the price at the pump. Some reports already have shown people are reconsidering summer road trip plans based on the cost of gas that shows no signs of dropping in the short term.
Proposition 98, passed by voters during tough times back in the late 1980s, requires that about 40% of the budget go schools and community colleges so their budgets will continue to grow on a per student basis. Enrollment in public schools has dropped every year since 2013-14 and fell by 270,000 students statewide over the last two years of the pandemic. Enrollment is under 6 million for the first time in decades. With about half of the surplus devoted to education totaling $128.3 billion, that will provide $22,850 per student, an all-time record. So school districts will do just fine—the question is how effectively the money will be spent. Public education is a disaster for poor Black and Brown children.
The same can be asked across the budget categories. The governor is proposing some one-time expenditures as well as growing the rainy day fund by a healthy amount.
All of this will make for an interesting May and early June as the Legislature must put a budget on Newsom’s desk by June 15 or its pay gets docked. Since that provision was passed by voters, the budget has never been late. Stay tuned to see how the dollars are doled out.