Walters: How Newsom’s spending binge created California’s chronic deficit

An array of charts buried in the fine print of the state budget, unknown to all but a few fiscal nerds, details what California has collected in revenues and spent over the last half-century.

The current charts in Gov. Gavin Newsom’s proposed 2026-27 budget reveal how spending has exploded during his governorship, far outstripping stagnant population growth, inflation and even a hefty increase in revenues.

The result, according to both Newsom’s Department of Finance and the Legislative Analyst Office, is a multibillion-dollar “structural deficit,” meaning that revenues cannot cover spending that Newsom and the Legislature have enacted.

“Both our office and the administration expect the state to face multiyear deficits, with estimates ranging from $20 billion to $35 billion annually,” Legislative Analyst Gabe Petek says in his overview of the proposed budget.

“These deficits are concerning for three reasons. First, after four years of projected deficits and a cumulative total of $125 billion in budget problems solved so far, the state’s negative fiscal situation is now chronic.

“Second, structural deficits have grown — our November outlook is the most negative forecast of the budget’s position since the pandemic. Finally, deficits have persisted even as the state’s economy and revenues have grown, underscoring that the problem is structural rather than cyclical. Taken together, these trends raise serious concerns about the state’s fiscal sustainability.”

The budget’s historic charts are important because they support Petek’s deficit warning and undercut politicians’ temptation to shift the blame to economic conditions, emergencies such as the Los Angeles wildfires or reductions in federal aid by President Donald Trump.

Here’s what one chart reveals:

In the seven budgets Newsom has signed, beginning with 2019-20, and the eighth one he has proposed, revenues have increased by 60%, mostly from taxes that tapped into a 48% increase in Californians’ personal income during the period. Total spending, however, jumped 72%, from $203 billion to $349 billion.

During that same period, the state’s population has been stagnant at 39.6 million while inflation at the national level has been 29%, averaging 3.4% a year, with California’s inflation slightly lower at about 3%.

In other words, revenues have increased at roughly twice the rate of inflation while spending has jumped even higher.

Those numbers are reflected in a nearly 28% increase in the state’s workforce, from 376,990 to 481,850, as the budget expanded programs that were in place when Newsom became governor and added new categories. Spending on health care, especially for low-income Californians, has been one major driver, while constitutional formulas for financing public schools have been another.

Another chart provides a clue to the massive error in revenue projections by Newsom’s budget staff in 2022 which sparked the spending surge.

In 2021, as the state’s economy began recovering from the COVID-19 pandemic shutdown and as billions of dollars in federal relief flooded the state, general fund revenues jumped 53% above the pre-pandemic 2019 level, topping $200 billion for the first time in history.

For reasons known only to themselves, Newsom and his aides assumed that the new revenues figure would be at least semi-permanent. It fueled Newsom’s claim, as the 2022-23 budget was being finalized, that the state enjoyed a $97.5 billion surplus, and his bragging that “no other state in American history has ever experienced a surplus as large as this.”

Newsom’s declaration fueled an immediate spending increase that carried into the following years. But the projected revenue increase turned out to be an illusion, and subsequently the administration acknowledged that it had over-estimated revenues by $165 billion over four years.

The structural deficit has been with us ever since, totaling $125 billion so far, as Petek describes. Newsom clearly envisions a presidential campaign after his governorship ends, but the self-inflicted budget mess may haunt him.

Dan Walters is a CalMatters columnist.