California proposes mere $8.5 billion spending cut against $68 billion deficit

California governor Gavin Newsom proposed a $292 billion state budget for the 2024-2025 fiscal year, driving economists to wonder why he plans only $8.5 billion in real spending cuts against what the nonpartisan Legislative Analyst’s Office says is a projected $68 billion deficit.

Newsom hit back against the LAO, claiming the state’s deficit is only $37.8 billion.

“Those of you who are writing about a different number I hope are immediately correcting that number,” said Newsom in a press event announcing the budget. “We have been pretty damn transparent with you by making the point publicly, not just privately, that that was not the number, but it continues to be reported as gospel.”

In a public statement, the LAO noted “the state also faces large ongoing deficits—averaging $30 billion per year” and that “preserving a substantial portion—potentially up to half—of the state’s reserves would provide a helpful cushion in light of the anticipated shortfalls that lie ahead.”

While the governor’s budget proposal does spend approximately half the state’s reserves, economists say spending this much of the reserve while cutting so little spending could put the state in a difficult position if the state’s deficits extend longer than one year, as expected.

“[The governor’s plan] seems to be a combination of some spending cuts and a bunch of budget gimmicks,” said Pacific Research Institute Senior Fellow for Business and Economics Wayne Winegarden in an interview with The Center Square. “We’re going to do internal borrowing from different accounts…we’re letting the universities borrow against money they’re going to get next year — that kind of budgeting is problematic because there’s a very high risk this isn’t a one year event … When you look at past budget crises they’re not one year events — they’re two, three, four year events. “

Newsom’s plan proposes $23,519 per pupil in in “TK-16,” which includes students in the newly created “transitional kindergarten” grade before kindergarten, and four years of college education, and calls for a freezing of new contracts by government agencies, and pausing non-essential vehicle, IT, and travel spending.

California Republicans, meanwhile, remain cautious about the state’s economic prospects and budget.

“Today the governor had his usual surplus of words to weave his way through a deficit of dollars,” said State Sen. Roger Niello, R–Fair Oaks, in a public statement. “The question will be whether the governor’s lower deficit number or the nonpartisan estimate is accurate.”

The California constitution mandates the governor submit a budget to the legislature by January 10, and that the legislature pass a budget by June 15.