California has a New Budget, but Needs to Do More

The California Legislature has passed, and Governor Gavin Newsom has signed, a $310.8 billion budget for the 2023-2024 fiscal year.

Key provisions of the new budget are an 8.22% cost-of-living adjustment for public school teachers, $1 billion to help local governments address homelessness, and $5.1 billion to be spent the next four years on public transportation.

However, the new state budget also includes targeted cuts, such as a reduction in the state’s emergency reserve fund.  The budget also allows the Governor to make additional cuts to one-time spending between now and March should tax revenues come in lower than expected.

The new state spending plan closes a $31.5 billion revenue shortfall. This comes after two years of multi-billion surpluses and record level state budgets. The state’s revenues have slowed as inflation soared, the stock market struggled, and the Federal Reserve notched up interest rates.

With inflation finally coming down to 3% nationally after reaching a 40 year high of 9.1%, there could be some budgetary relief coming for the Golden State in the next year.

But will it be enough? 

Even if inflation drops to the target rate of 2%, California residents will continue to pay more for housing, taxes, and energy than those in most states in the union.  The state’s high cost of living is the primary reason an estimated half a million residents have migrated to other states since 2020, with more looking to relocate.

The Los Angeles Times reported on a recent poll showing 4 out of 10 Californians want to leave the state.

According to the article, “More than 40% of residents say they’re contemplating moving out of California, with nearly half of them saying they’re considering that “very seriously.” About 61% pointed to the high cost of living here as the reason they’d go.”

This is not a problem that California’s elected leadership can afford to ignore any longer.

Many of those departing are middle and high income residents.  When these Californians and their business go, they take the taxes they pay to support state funded services with them.

That alone may be the biggest threat to California maintaining a stable state year-over-year state spending plan.

Unless California’s government can craft policies that effectively deal with these high costs, massive swings from multi-billion dollar budget surpluses to multi-billion deficits are likely to continue.

And should the long-predicted recession caused by the Federal Reserve’s Interest rate hikes finally arrive balancing the 2023 budget in spite of a $31.5 billion deficit might be seen as easy.

With much funding for local services flowing through Sacramento, county and municipal governments are typically the first to suffer when the state must reduce funding.  They therefore should be on the front lines pushing for reforms that help alleviate the pressures a large percentage of Californians are experiencing that are making them want to leave the state.

Brian Floyd is an author, historian, and political strategist who frequently contributes commentary to the Blade.