California uses gimmicks instead of addressing the heart of its budget problem

One of the many gimmicks that California’s governors and legislators employ to paper over budget deficits, thus avoiding real spending cuts or increasing taxes, is to assume some level of savings from making state agencies and programs more efficient.

They will plug arbitrary numbers into the budget from such supposed efficiencies, then, along with other gimmicks, declare that the budget gap has been closed and pat themselves on the back for the feat.

The 2024-25 budget is a prime example of such political expedience. As enacted last June it totaled $297.9 billion, of which $211.5 billion was general fund spending. But the budget assumed that the state would receive $207.2 billon in general fund revenues, so it had a gap to bridge.

Gov. Gavin Newsom and legislators turned to a series of gimmicks and indirect loans to close the gap, including $2.9 billion from assumed efficiency savings in state agencies and state universities.

However, when Newsom unveiled a 2025-26 budget proposal in January, the plan acknowledged that while the universities met their relatively tiny savings goal of $200 million, other agencies would reduce spending by just $800 million, or less than a third of their $2.7 billion goal.

The new budget also revealed that 2024-25 general fund spending had ballooned to an estimated $232 billion — $21 billion more than the final version had assumed — and while projected revenues had also increased to $217 billion, the 2024-25 deficit would widen to $15 billion.

Last month, the Legislature’s budget analyst, Gabe Petek, reported that his staff was having difficulty getting accurate information from the administration about the underachieving efficiency decree.

“We have tried to get information from some of the larger departments to better understand what types of operational changes are being implemented to achieve the identified savings,” Petek wrote. “As we discuss in greater detail later, we have received limited information thus far.”

This venture into the weeds of state budgeting generates two observations: One, that gimmickry is an integral part of the current process, and second, that the state faces chronic gaps between income and outgo, a condition dubbed a “structural deficit.”

It is an ongoing mismatch between what the state’s tax system can produce in revenues and what current law says must be spent. The problem dates back to 2022 when Newsom declared that the state had a $97.5 billion surplus, based on surging revenues.

He and legislators raised spending sharply on that assumption, but it proved to be an illusion, resulting in the income and outgo gap that will continue at least for the remainder of Newsom’s governorship — unless he and legislators make real spending cuts or increase taxes.

Read More: California’s budget whiplash: From a record-setting surplus to a massive shortfall in one year

Moreover, the destructive and deadly wildfires that swept through Los Angeles will impact both the revenue and spending sides of the state’s ledger, more than likely increasing the structural deficit.

Newsom and legislators have already approved a $2.5 billion appropriation for fire-related costs, which would increase the deficit even more unless he can persuade President Donald Trump to send federal aid. Even with a federal bailout, however, Newsom is likely to leave his successor, whomever that might be, with a fiscal headache.

Newsom surely hopes to skate through without either deep spending cuts or increasing taxes, while continuing to cover the chronic gaps with gimmicks such as arbitrary efficiency savings, direct and indirect loans and creative bookkeeping.

He has even increased spending in some categories despite the sluggish revenues, most spectacularly — and most irresponsibly — jacking up state subsidies for the Southern California film and video industry.

Sending more money to Hollywood while telling state universities to tighten their belts, potentially impacting enrollment, would seem to be the height of misplaced priorities.