Gov. Gavin Newsom said last week his plan to cover the state’s roughly $37.9 billion budget deficit includes taking money out of California’s reserves.

His plan involves cutting $8.5 billion from spending and pulling more than $13 billion from the reserves. He also suggested delaying a minimum wage increase for healthcare workers.

The governor said he would not roll back previous major spending commitments, such as free kindergarten for all 4-year-olds and free health insurance for all low-income adults regardless of their immigration status.

Critics have argued that taking money out of the state’s reserves goes against the spirit of the rainy day fund, which should be used for actual emergencies, such as natural disasters. The governor would need to declare a fiscal emergency to tap into reserve funds.

Q: Is Gov. Newsom on the right track with his budget plan?

James Hamilton, UC San Diego

NO: The state’s reserves are intended for a fiscal emergency. The stock market has been booming, and California’s unemployment rate in 2023 was among the lowest we’ve seen in 40 years. The deficit did not result from a sharp slowdown in economic growth. Instead, it reflects a longer-term mismatch between spending and revenue. The governor made a good decision in looking for some spending adjustments. But we need to do more.

Austin Neudecker, Weave Growth

NO: Balancing any budget requires difficult gives and takes but I am no fan of sleight of hand. In my view, emergency funds should not be tapped to close budget gaps but saved for their intended purpose. It was also reported that the assumptions about tax revenues were wishfully increased and the final government employee payday will be scheduled for after the 2025 New Year. Make the tough calls to achieve balance without tricks.

Chris Van Gorder, Scripps Health

NO: We have more deficits coming. Tapping the rainy day fund now delays cuts that need to be made to ensure future budgets are not worse. The governor and legislature need to reassess the approach to both spending and taxation, to create a long-term sustainable economy for the state’s residents and businesses.

Jamie Moraga, Franklin Revere

NO: Essentially, it’s robbing Peter to pay Paul. Taking money out of reserves should be held for emergencies. California had a significant budget surplus in 2021 and 2022 but now has one of the largest deficits in the state’s history due to the significant expansion of state government. California’s notoriously “business unfriendly” atmosphere has also led to large corporations leaving within the past four years, which is a hit to tax revenues. If expenses outweigh revenue the state should make significant cuts rather than continue to spend and bleed reserves.

Norm Miller, University of San Diego

NO: Gov. Newsom should be applauded for his budget cuts, but he should not be using rainy day funds, set aside for unpredictable Black Swan type events, which only temporarily masks the deeper problems of outspending tax revenues and making promises we can’t keep. California continues to follow the prudent fiscally responsible behavior of U.S. presidents, of both parties, ensuring our children and grandchildren, that remain in the state, will be thanking us for our austerity (sarcasm noted).

David Ely, San Diego State University

NO: State tax revenue is highly variable due to the heavy reliance on capital gains and other volatile income sources. So the state budget can swing from a surplus one year to a deficit the next. Changing the tax structure to one with greater stability should be the priority. Until tax revenues are less volatile, the state will continue to frequently face difficult decisions on spending cuts and drawing down rainy-day funds to handle deficits.

Ray Major, SANDAG

NO: Reserves should not be used to fund the deficit, and we should not delay minimum wage increases for healthcare workers. Excessive spending fueled by the multi-trillion-dollar federal infusion should be rolled back to pre-subsidy levels. Reserves are meant to be spent during challenging economic periods. We haven’t officially entered into a recession, and we are already depleting state funds. This budget plan should be reconsidered in light of the current economic conditions.

Haney Hong, San Diego County Taxpayers Assoc.

NO: But this isn’t just a criticism of the governor or this specific budget. California lives beyond its means, and it’s clear to me that we, the taxpayer, don’t get what we want out of the tax dollars we share. We spend more on education than many states, yet our outcomes are below average. We spend more on social services, and yet poverty only grows. Don’t get me started on homelessness. The California value proposition has to be more than just good weather.

Kelly Cunningham, San Diego Institute for Economic Research

NO: Among the many spending cuts the governor must make, it is revealing that delaying the minimum wage increase for healthcare workers is recognized as not benefiting the economy. Despite being promoted to purportedly help the economy grow, minimum wage increases are recognized as a drag on functioning. The state government’s massive taxation and spending imposes onerous luxury costs that harm productivity and are not self-sustaining for prosperity. Reducing state spending will actually improve the economy.

Lynn Reaser, economist

NO: The revenue projections fall at the optimistic range of what may be plausible according to the Legislative Analyst’s Office. Fiscal prudence suggest that estimates should be conservative. Spending increases, such as the expansion of Medical, need to be delayed until funds are available. Slashing $13 billion from the $24 billion reserve fund should be a nonstarter. Meanwhile, climate change will confront the state with ongoing disaster spending.

Phil Blair, Manpower

NO: The reserve fund is for emergencies like a natural disaster. It should not be taped due to the expense of excessive benefit programs being added all year long. It was an eye opener when the state realized how much programs like minimum wages for healthcare workers were going to cost the state, not just private industry. We saw the slowdown in state income starting months ago. That should be the forewarning to control expenses and live with in our projected income forecast.

Alan Gin, University of San Diego

YES: The proposed budget is a balanced approach, with a combination of spending cuts, including delaying the increase in healthcare worker minimum wage, and dipping into reserves. The current budget deficit was partially caused by last year’s delay in the tax deadline because of the storms impacting California at the beginning of 2023. That should be a one-time event, which justifies dipping into the reserves. However, the state’s revenue must be carefully monitored, given the population out-migration the state has experienced in recent years.

Bob Rauch, R.A. Rauch & Associates

NO: Gov. Newsom should not cover the state’s budget deficit by utilizing California’s reserves. The reserve money is for true emergencies and “rainy days,” not self-inflicted budget problems. The big three revenues for California — personal income, sales, and corporation taxes — have decreased by 20 percent as many high-paying taxpayers have seen reductions in volatile stock-based compensation. We must tighten up, not beg, borrow, and steal. Start with cutting free health insurance for illegal immigrants.

Not participating this week:
Gary London, London Moeder Advisors
Caroline Freund, UC San Diego School of Global Policy and Strategy

Have an idea for an Econometer question? Email me at phillip.molnar@sduniontribune.com. Follow me on Threads: @phillip020