Legislative leaders would have us believe that the 2025-26 budget agreement they forged with Gov. Gavin Newsom this week is a noteworthy — even heroic — response to financial problems caused by factors beyond their control, particularly President Donald Trump’s tariffs.
A summary of the $321 billion agreement issued by the state Senate declares, “Through the work of the Legislature and the governor the past two years, the budget was once again stabilized, with the governor’s January 10 proposed budget being balanced without needing new solutions. Unfortunately, since January, circumstances have changed, and California now faces a significant budget shortfall.”
“First and foremost,” the summary continues, “the policies of the new federal administration — in particular the tariff increase policies — have caused economic forecasts throughout the world to be significantly downgraded.”
It goes on to cite “to a modest degree, the baseline costs of key programs — particularly Medi-Cal — have grown faster than projected … and third, to a smaller degree, the devastating L.A. fires have had a negative economic impact and resulted in increased state spending.”
That scenario is fictional, conjured up to mask the fact that Newsom and legislators have been overspending revenues for three years, ever since the governor erroneously declared that the state had an almost $100 billion surplus — long before fires hit Los Angeles and Trump was inaugurated.
The supposed surplus ignited a multi-billion-dollar flurry of new spending in 2022, that has persisted. The administration finally admitted, a year ago, that it overstated projected revenues by $165 billion over four years.
The initial 2025-26 budget that Newsom proposed in January had an $11 billion general fund gap between revenues and spending. His revised budget, released in May, had a $19 billion deficit even with a number of spending cuts, mostly in services for the poor and elderly. The budget deal expands the deficit to $21 billion.
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Thus all of the versions of the budget, including the semi-final one unveiled this week, would fill the gaps for another year with payment deferrals, loans, accounting gimmicks and raids on reserves meant to cushion the effects of genuine emergencies.
Direct and indirect loans to the general fund budget come from special funds set aside for specific purposes, and after three years of deficit spending the state has accumulated many billions of dollars of internal debt that will have to be repaid sometime.
The accounting gimmickry takes several forms, such as delaying $2.3 billion in support payments to community colleges and local school systems that are due in June 2026 until a month later, thus shifting them from one fiscal year to another.
Officials call such maneuvers “solutions,” but they don’t solve anything. They merely stave off the day of reckoning when officialdom runs out of tricks. That day will probably come after Newsom has left the governorship and is, perhaps, running for president.
In effect, the state has adopted the same hide-the-pea approach to budgeting that the federal government employs, one that has resulted in a multi-trillion-dollar national debt. Trump, by the way, appears to continue that spend-now-pay-later practice with his “big beautiful bill” that, by all accounts, would grow the national debt even more.
Were a private corporation to cook its books like the state government does, its executives could wind up in jail for fraud. For some strange reason, however, California’s voters continue to tolerate the Capitol’s chronic fiscal malpractice.
Dan Walters is a CalMatters columnist.
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