California Governor Gavin Newsom’s budget revision, released late last week, contained two eye-popping numbers. The first is the sheer size of the proposed budget: $300.7 billion. This represents a doubling of the state budget over the last eight years, and makes California’s state budget bigger than the national budgets of all but a handful of countries on earth.
The second is the size of the projected surplus in revenues this year: $97.5 billion. That’s a simply unheard-of number in state politics, and a dramatic turnaround from a decade ago, when California was running multibillion-dollar deficits and its basket-case finances were seen as a warning sign of what happens when states promise big programs but also lock into place strict limits on the ability to raise taxes. Back then, the Golden State had to take the axe to vital spending on everything from schools to road repairs. Among other consequences, California ended up spending less per school pupil than did most other states. By 2012, it was, shockingly, ranked 47th; by 2022, it had improved to 17th.
California’s reversal of fortunes and its newfound ability to reinvest in its human and physical infrastructure has many causes: The electorate’s aversion to tax-raising measures has been significantly diluted in recent years; Silicon Valley has proven to be an unending bonanza for creating taxable wealth for the state; the stock market, notwithstanding its recent swoon, has generated huge capital gains for wealthy Californians; and the tranche of stimulus and anti-pandemic measures of recent years has flooded states and cities across America with cash.
Newsom is aware of the fact that the state’s history is awash in examples of stunning boom times followed by brutal busts—in recent years, there was the bursting of the dot-com bubble in 2000, and another following the collapse of the housing market in 2008. He is also aware of the fact that if the stock market decline intensifies, and the economy is thrown into a recession by rising interest rates, California’s fiscal fortunes could reverse with stunning speed. That’s happened before—which is partly why then-Governor Jerry Brown, in the middle of the 2010s, was so determined to use the good fiscal times not to create large-scale spending programs but to bulk up the rainy-day funds for the next downturn.
To protect the state against these likely headwinds, Newsom, too, has proposed putting aside more than $37 billion of the surplus into reserves—the state’s rainy-day fund, a school stabilization fund, an operating reserve, and a social services safety net. Yet that still leaves a huge amount of money for investments in social and environmental infrastructure, in mental health courts, health care systems, services for the homeless, schools, and so on. It also leaves money for the state to bulk up its abortion services in anticipation of a likely overturning of Roe v. Wade, and the arrival of large numbers of women from anti-choice states who will possibly soon be seeking abortions in California.
During the Trump era, California’s political system came more and more to resemble that of a nation-state rather than simply a state-among-states. It didn’t quite print its own money or formally create its own immigration system, but it did begin establishing foreign relations with other states vis-à-vis environmental rules and climate change interventions, in particular; and it did push back as hard as possible against the hard turn to the right on immigration at a federal level.
Now, in the Biden era, California is flexing its huge fiscal muscle, showing what a state with vast resources and progressive political leadership can do if it sets its mind to reform. This year, Newsom is proposing more than $11 billion in targeted tax refunds to mitigate the impact of high inflation. This includes rebates aimed at vehicle owners paying punishingly high at-the-pump gas bills and $2.7 billion in emergency rental assistance—a vital intervention in a state with the worst housing crisis in the country. He has also thrown his political weight behind a billion-dollar initiative to provide aid to Californians who are struggling to pay utility bills, and he is asking for $8 billion to further develop clean energy in the state.
None of this makes California an idyll—or anything even remotely resembling such. It is bedeviled by a catastrophic housing and homelessness crisis; its city streets are still home to tens of thousands of seriously mentally ill men and women; its air quality, despite tough environmental laws, is often dangerous; its water systems are fragile; large tracts of its land are vulnerable during ever-worsening fire seasons; and so on. Despite these challenges, however, California is making a good-faith effort to move courageously to reimagine government services in more inclusive, ambitious ways.
The 2022–23 budget is a bold one. Assuming he wins his reelection bid this November, it will give the governor an opportunity to further reimagine governance in a state that has already shifted dramatically away from the more conservative economic priorities that animated it in the first years of the century.