Walters: California’s deficit dilemma — cut spending, borrow money or raise taxes?

The California Legislature has just a limited days to pass a - state budget to meet the state Constitution s June deadline The deadline will be met if for no other reason than legislators would at least theoretically have their salaries suspended were they to miss it However the budget they enact may bear only a passing resemblance to what will eventually perhaps a multitude of months later become a complete fiscal plan The revised budget that Gov Gavin Newsom proposed a month ago projects that general fund tax revenues for the year would be about billion short of covering the spending that he has proposed and that s after counting the billions of dollars in reductions primarily in robustness care and other services for the poor he s solicited the Legislature to swallow Newsom would roll back expansions that he and legislators happily enacted when they erroneously assumed the state had a huge surplus Newsom now says the cuts are necessary to balance the budget although it would still have by his own numbers the billion gap between income and outgo that he would cover with temporary fixes such as on- and off-the-books borrowing tapping urgency reserves and accounting gimmicks He plans to tap billion from the budget rainy day fund bringing the shortage closer to billion So that s the dilemma Newsom and legislators are getting very heavy pressure from advocates for the endangered services such as Medi-Cal coverage for undocumented immigrants to back off However restoring them in the budget would cost about billion thus increasing the state s chronic deficit and requiring either reductions in other spending categories or more short-term patches The dilemma s large amounts of money uncertainty about the effects of President Donald Trump s tariffs and proposed federal spending reductions and ideological divisions among Capitol Democrats over what to do all point to the passage of a paper budget to meet the constitutional deadline while debate and negotiations continue indefinitely Underlining the situation is an acknowledgement by the administration backed up by the Legislature s budget analyst Gabe Petek that the hole in the budget is what s called a structural deficit meaning that spending now on the books is to billion a year higher than expected revenues Related Articles Walters As California s market system limps along why is Gavin Newsom invariably boasting Cruel and petty and stupid SF leaders furious over plan to erase Harvey Milk s name from Navy ship Barabak Yelling and finger-pointing at California Democratic Party convention How home lenders are impeding Californians from rebuilding fire-torn L A Taves No one s in charge Newsom must fill California s homelessness leadership vacuum Petek s office has calculated that since Newsom became governor in spending has risen by an average of a year while revenues have increased by just a year and if the gap continues the state s debt from borrowing could reach billion within a limited years The bottom line of all these numbers is that no matter what they do on this budget it will continue to leak red ink until there is a day of reckoning There is another way out of the conundrum if the Capitol s politicians want to take it raise taxes Labor unions advocates of strength care and social programs and the the majority left-leaning members of the Legislature want to do it Various taxation schemes are floating around the Capitol mostly suggesting raising taxes on corporations to avoid directly taxing voters In its current review of the state s budget situation Petek s office raises the tax increase alternative saying it ultimately is a laborious judgment call for the Legislature with political consequences as well as financial ones Newsom who s clearly looking ahead to what he ll do after his governorship ends months hence has repeatedly rejected tax increases preferring to get through each year with short-term fixes Moreover increasing corporate taxes would amplify the state s image as having an extraordinarily challenging and expensive business context Will Democrats who have complete control over the state finances bite the bullet by either rolling back spending or increasing taxes or will they as former Gov Arnold Schwarzenegger was fond of saying merely kick the can down the road Dan Walters is a CalMatters columnist