Walters: Newsom’s final budget faces a litany of political and financial challenges

On paper, the annual process of drafting a state budget is rational. In practice, it’s more akin to gimmickry.

It starts, as state law requires, with the governor’s introduction of a preliminary version in January, as Gavin Newsom did last week, unveiling a $349 billion budget for the fiscal year that begins July 1.

Theoretically, the Legislature will spend the next four months going through its details, Newsom will make some revisions in May, and he and legislators will finalize a version for adoption by the June 15 constitutional deadline.

A few decades ago, that’s what more or less happened each year. Over the last couple of decades, however, it’s gone off the rails.

As Democrats gained overwhelming control of the Legislature, they resented having minority Republicans having any input. Their allies in the public employee unions sponsored a 2010 ballot measure to lower the vote requirement for budgets from two-thirds to a simple majority, thereby eliminating the need for Republican votes.

Proposition 25 had another unspoken consequence. It allowed so-called “trailer bills” to be enacted with the same simple majority votes and take effect immediately upon signing. Originally, trailer bills were to make legal changes needed to implement budget allocations. But one year at a time it morphed into vehicles for major changes in state law that had little or nothing to do with the budget, often drafted in secrecy and passed in batches with little scrutiny.

Years ago, a reporter who covered the Legislature coined an apt name for such measures, calling them “mushroom bills” because they grew in the dark, nurtured by manure.

Newsom has been especially eager to exploit the trailer bill loophole, often packaging much of his agenda in such measures, making them subject to closed-door negotiations with legislative leaders and using the budget’s appropriations for leverage.

Some mushroom bills backfired when their true impacts became known, embarrassing legislators who voted for them, and forcing them to backtrack. Having been burned, legislators indirectly refused to allow some issues to be handled through trailer bills, forcing Newsom to deal with them more or less in public.

Two years ago, for example, they balked at Newsom’s effort to include an overhaul of the California Environmental Quality Act in a trailer bill, leading to two years of negotiations that culminated last year in a CEQA reform measure.

Nevertheless, the trailer bill syndrome continues. The Capitol is waiting to see what Newsom has up his sleeve for the final budget of his governorship.

Even without the trailer-bill sideshow, forging a new budget will be difficult because Newsom has declared that the version he unveiled last week is basically a placeholder — an updated semi-clone of the current year’s budget — that must await more revenue data, particularly the all-important personal income tax returns due in April.

Newsom projects that the state will gain an extra $42.3 billion in revenue over three years, but faces doubt, especially from the Legislature’s budget analyst, Gabe Petek. In an initial appraisal of Newsom’s budget Monday, he continues to warn that the state could take a serious revenue hit if the high-flying stock market stumbles.

“These risks are severe enough that not incorporating them into this year’s budget, as the governor proposes, would put the state on precarious footing,” Petek wrote. He also reminded the Legislature that even if Newsom’s rosy scenario comes to pass, the state sill still face hefty deficits, saying “the state’s negative fiscal situation is now chronic.”

With a dead-on-arrival draft budget, deep differences over revenues, chronic deficits and pressure on Newsom and legislators to offset the effects of major cuts in federal aid — not to mention looming trailer bill issues — it’s hard to even find a starting point.

Dan Walters is a CalMatters columnist.