Blowing out the state budget is like maxing out your credit card. It feels great until the bill comes due. That’s a lesson for Nevada lawmakers.
In recent years, tax revenues have poured into California at almost unfathomable levels. The state’s budget for the current fiscal year is more than $300 billion. That level of spending would have seemed improbably high even a decade ago. In fiscal year 2013, California’s budget was $134 billion. Twenty years ago, it was a “mere” $95.8 billion.
It’s fun to spend money, especially when it comes from other people. Earlier this year, California Gov. Gavin Newsom put out a release bragging about the state’s new budget. “Climate change is real y’all,” it said when talking about nearly $54 billion for climate initiatives. There was a gun buyback program and rhetoric about turning K-12 into Pre-K-16, including free community college. There was also $14.8 billion for rail, ports and bicycling projects. There just wasn’t quite enough money to fix the routine back-ups on the I-15 from Californians leaving Las Vegas. But don’t worry, there may one day be a high-speed train from Fresno to Bakersfield. Priorities.
All of this spending has helped Newsom boost his national profile. If President Joe Biden decides to pass on reelection, Newsom has been positioning himself for the Democratic nomination. This spending represents a key part of his appeal. He can claim that’s he married progressive spending priorities with fiscal responsibility.
If the economy only grew, perhaps continual spending increases would be possible. But economic growth is cyclical. The federal government pumped money into the pockets of individuals and state and local governments during COVID. That boosted the economy and fueled inflation. As the Federal Reserve tries to tame it, the boom times are on the verge of giving way to slower growth or a recession.
That’s bad news for California. It’s now facing a $24 billion budget deficit next fiscal year, thanks to declining tax revenues compared to projections. Humorously, the Legislative Analyst’s Office calls it a “budget problem.” But Orwellian terms won’t increase tax revenues. If a recession comes, California’s “budget problem” could be “$30 billion to $50 billion below our revenue outlook,” the office found.
It looks as if Biden will seek reelection. Otherwise, Newsom would have learned that it’s a lot harder to run for president when you’re presiding over budget cuts.
There’s a lesson here for Nevada lawmakers, especially Gov.-elect Joe Lombardo. Nevada is projected to have its own record tax revenues over the next biennium. Don’t create programs you’ll have to cut when the economy takes a dip.
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