Monday, May 20, 2024

Gavin Newsom’s Free Money Hangover and the $25 billion Deficit

In October 2022, I wrote a piece relating to California Governor Gavin Newsom’s latest $9.5 billion free-money giveaway. This bizarro-world program was ostensibly designed to fight inflation by creating more of it, which is utterly confounding, unless, I suppose, you’re a woke Californian.

In that article, I wrote:

“So, it’s not surprising that when common sense dictates the state of California should be hoarding cash and boarding its metaphorical windows in anticipation of the coming recession hurricane, instead, it’s doling out more free cash in the same way a firefighter would put out a house fire by pouring gasoline on the blaze.”

It seems I was more prescient than I realized.

 According to the Legislative Analyst’s Office (LAO), California’s 2023-24 budget will likely include a $25 billion deficit when original estimates projected a $75 billion surplus. Already, revenue projections for fiscal 2022-23 are expected to come in $41 billion short of projections.

What if there is a National Recession in 2023?

California is in a very precarious situation. The state has only $23 billion in general purpose reserves, which means they have just enough to cover the projected deficit through 2023. Remember, the state had a $100 billion surplus in 2021, which resulted from explosive tax revenue generated from high-wage earners and a $26 billion gift from Slow Joe Biden through the American Rescue Plan Act. I’m sure you couldn’t have guessed, but they spent all of it. So, the larger question is what happens to those deficit projections if the national economy experiences a recession?

In its report, the LAO warns that in a recession, “revenues could be $30 billion to $50 billion below our revenue outlook in the budget window.” For California, that would be a financial disaster that might prove to be unmanageable. Remember, this is a state that currently owes $1.6 trillion in debt, which includes an unfunded pension liability of an estimated $880 billion. It is difficult to imagine how California would handle debt payments without significantly cutting burdensome social programs, and one can only imagine the response from its woke constituents.

Social Program Cutting Begins

At its core, California’s financial problems stem in large part from Gavin Newsom’s hubris. The state is blessed with a variety of unique advantages, including its west coast geography, favorable access to Asian markets, size, weather and a sophisticated high-tech industry. Instead of cherishing and protecting these gifts, Newsom and his fellow woke cronies in the legislature believe they are responsible for the fiscal bounty California enjoys.

As the reality of the “new normal” unfolds, it seems Newsom is beginning to see the future, and reluctantly, he is responding. The governor recently vetoed nearly a dozen spending bills, killing programs that would have provided reproductive (abortion) healthcare services at primary care clinics, free transit passes for students, limited preschool fees for low-income families and all-day kindergarten classes.

Still, if Newsom really wants to put California’s financial house back in order, he can start by eliminating the ill-conceived $54 billion climate change bill passed in 2022. This misguided attempt by the state to control its citizen’s movement and energy choices includes $6 billion in electric vehicles subsidies, $8 billion to change the state’s electrical grid to renewables, $15 billion for public transit and about $5 billion in drought resilience measures.

In the bill, the only legitimate expenditure is the $5 billion earmarked for drought resistance. The other $49 billion will be wasted on other “feel good” or regressive programs based on an assumption that climate change is human-caused, which ultimately may prove to be untrue. These measures will impose costly and unnecessary punitive restrictions on California’s citizens that will suppress commerce and significantly raise living costs. In particular, pay attention to the $15 billion for public transportation. They want to make owning a car so unaffordable, you’ll have no choice but to use public transportation, where your boarding pass will track your movements.

It’s Time for California to Demonstrate Fiscal Sanity

With deficits projected to dramatically increase in a prolonged recession, the LAO projects a 2026-27 budget, where total revenues are less than the budget deficit. For Gavin Newsom, maybe it’s time to stop thinking about his presidential aspirations, forgo the A-list cocktail parties, and focus on the precarious economy developing in California.

Woke liberals need to face up to the reality that the free-money party is over, and that means an end to the lunacy of lavish spending on expensive programs that do nothing to improve the lives of working-class Americans.

Trust me, these lessons will be learned one way or another…