PHOTO: RICH PEDRONCELLI/ASSOCIATED PRESS
By The Editorial Board
California Gov. Gavin Newsom must feel like he won the lottery, and in a political sense, he has. A year ago he and other Democratic Governors were begging for a federal bailout. Last week he announced a $98 billion surplus, which he wants to spend as if, well, there’s an election coming.
Mr. Newsom revealed the giant surplus in his updated $301 billion budget plan. State coffers have swelled by 40% during the pandemic thanks to Congress’s Covid spending and a capital-gains revenue gusher from surging asset prices. California’s surplus alone is bigger than the budget of every state besides Texas, Florida, and New York.
Many GOP states are using their windfalls to cut taxes. Not California. Mr. Newsom proposes to spend his surplus on buying votes and ameliorating the #Californiaproblems that progressive policies have created.
The biggest budget winner as usual is the teacher’s unions. Public schools will get $128 billion, a 25% increase over pre-pandemic levels, though student enrollment has shrunk by 270,000. School shutdowns and California’s woke curriculum have spurred many parents to seek alternatives.
Mr. Newsom also wants to give $400 to every registered vehicle owner, including those with electric cars. He wants to mitigate the political damage to Democrats from California’s high gas prices, which are $1.50 a gallon more than the national average. The causes are high taxes and environmental regulation. Yet Democrats don’t want to ease those because higher gas prices encourage people to buy electric cars. Better to send everyone checks.
The Governor also wants the state to pay unpaid utility bills. State electricity prices have surged 13.5% this past year and are twice as high as in neighboring states, again thanks to green-energy mandates. Some folks are struggling to pay their bill, and Mr. Newsom wants to pay them.
His budget includes $750 million for mass-transit agencies to make trips free. Los Angeles’s Metro stopped collecting fares during the pandemic, which resulted in more homeless people on subways and buses. Now many commuters are avoiding mass transit because it’s dangerous and dirty.
Mr. Newsom allocates $19 billion to address the state’s rising crime and homelessness. Most of this money will fund subsidized housing, and very little will go toward fixing the underlying causes: mental illness, substance abuse, and lax penalties for offenders. Law enforcement will get a mere $800 million.
The Governor tacitly acknowledges that California’s declining quality of life and increasing cost of living is driving away businesses. Thus he proposes $2 billion to bribe them to return. Priority for these grants will go to businesses that relocate from states that have “enacted anti- LGBTQ+ or reproductive rights laws”—i.e., red states with lower taxes.
A recent study by Stanford economist Joshua Rauh found more high earners left California for states with no income tax after voters in 2012 enacted Prop. 30, which raised the top marginal rate by one to three percentage points for singles making more than $250,000. They were also more likely to leave following the 2017 tax reform’s limit on state and local tax deductions.
California’s highly progressive tax system—in 2019 the top 0.5% of taxpayers paid 40% of state income tax—creates a revenue roller-coaster. Capital gains are now a larger share of personal income-tax revenue than at any point since 1999—before the bursting dot-com bubble triggered a multiyear budget crisis.
The state Legislative Analyst’s Office recently projected a budget problem by 2025 in 95% of the 10,000 scenarios it modeled, including those in which revenues increase because of constitutional spending obligations. Mr. Newsom says he’s “deeply mindful” of the risk of another revenue implosion, yet proclaimed “I’m proud of California’s progressive tax system.” Of course, he is.
California’s budget blowout is another reminder that state and local governments never needed the $1 trillion or so in federal pandemic relief from Congress. Most of the money has gone to transfer payments and payouts to public unions that will create an automatic tax rachet when revenues decline.
Enjoy the party, Mr. Newsom. But please don’t come to Washington begging for a bailout when it ends.
Brighter ideas 