How should California spend its large budget surplus? Journalism Project

The broader California economy is a bit sluggish, but some sectors have been booming, thanks to record low interest rates and several billions of stimulus dollars from Uncle Sam.

Retail sales, housing and the stock market, three sectors highly sensitive to federal fiscal and monetary policies, are on the rise, even as the state grapples with the highest unemployment and poverty rates in the country.

The state treasury has seen a bumper crop of tax revenue from the high-flying sectors, giving Governor Gavin Newsom and state lawmakers tens of billions of extra dollars to spend.

The state budget enacted in June spent the grant on a variety of new and expanded programs, including cash payments to low-income Californians, but revenue continues to exceed budget estimates by billions of dollars.

That means, as Legislature budget analyst Gabi Petek said last week, the 2022-2023 budget could have a surplus of $31 billion — so much so that it would run counter to Gann’s rarely used spending limit.

Newsom also says the state will have a “historic budget surplus,” although he won’t put his number on it until January, when he releases his first draft of the next budget.

It might be a much different number because Newsom’s finances are often at odds with Petek’s employees, but whatever the case, Newsom and lawmakers are going to get a lot of extra bucks, and those who want some are starting to line up.

Petek cautions that Jan’s boundary, originally enacted by voters in 1979 and amended a decade later, will be a complicating factor, although there will be disagreement over what it is. Once revenue exceeds the limit, the surplus should be used for a few specific purposes, including, likely, tax cuts.

In 1987, then Gov. George Diokmjian and lawmakers deducted $1.1 billion for taxpayers — a big sum in those days — after revenue exceeded Jean’s limit. The discount loosened the limit to make discounts less likely in the future.

Cash payments for the 2021-2022 budget to help those financially affected by the pandemic are framed as tax deductions to meet Jean Lemmit’s restrictions. Association president Anthony Rendon says he wants more “one-time investments allowed under the Gann limit,” apparently hinting at an extension of the payments.

Newsom said he wants to set aside some extra money to pay off retirement and/or infrastructure debt. The overwhelmingly Democratic and left-leaning legislature favors expanding more social, educational and medical benefits.

Since it’s the season for suggesting ways to spend the state’s embarrassment of riches, let’s add one more—doing something about the state’s $20 billion debt to the federal government for unemployment insurance payments during a recession.

California’s unemployment insurance system, funded by taxes levied on employers, provided basic support to more than two million workers suddenly out of work, and quickly depleted already scarce reserves. Then the state began borrowing from the federal government to keep the checks cashed.

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