Reflections on CA’s approach to budgeting after a decade of growth

OPINION – The State of California General Fund budget more than doubled in size from $96.3 billion in fiscal year 2014 to $225.9 billion in fiscal year 2024 while the state population remained essentially flat. Do residents feel their state government services have doubled during this period? I doubt it.

An obvious counterpoint is that government services disproportionately benefit low-income and other disadvantaged individuals so the increase in resources is concentrated there. However, this group hasn’t benefitted by an increase in government services by 2x either. On the contrary, conditions have worsened for our state’s most disadvantaged individuals. The estimated number of people experiencing homelessness in the state in 2014 and 2023 were 113,952 and 181,399, respectively. It is true that increased revenues have been directed to higher expenditures associated with inflation. However, inflation only accounts for some of that. Based on a calculation using annual CPI rates, cumulative US inflation has been 32.5% from 2014 to 2024—not over 100%.

As the robust revenue growth of the last decade peters out, what does the State of California have to show for it? We didn’t build the high speed rail approved in 2008. We didn’t construct large water infrastructure projects to increase water storage capacity. We didn’t measurably improve forest and rangeland management to mitigate wildfire risk.

Meanwhile, an ability to assess the financial condition of the state is stymied by perpetually late financial audits. Fiscal year 2025 is starting in less than a week and the state has not released the financial statements for fiscal year 2023 yet. This is viewed as a credit negative by investors (namely individuals and institutions who buy bonds) and could ultimately result in the state paying higher interest rates on its debt service.

Perhaps the current budget situation is an ideal time for reflection on how California can achieve greater financial accountability particularly related to spending:

One way might be automatically routing a large percentage of future General Fund surpluses to a fund that the Governor and Legislature cannot touch except to cover budget deficits. Given California’s volatile revenues associated with heavy reliance on fluctuating capital gains revenue, a surplus revenue fund should be much more robust than the Rainy Day Fund, which only requires the State have the equivalent of 10% of the General Fund budget set aside.

Additionally, the State Controller should consider better harnessing her constitutional authority and the bully pulpit to highlight waste, fraud, and abuse. The pace of identifying such things has slowed markedly. In November of 2022 around the time of the current Controller’s election, the State Controller’s Website stated that $7.32 billion “waste, abuse, and fiscal mismanagement” has been identified since 2015. That number only ticked up to $7.46 billion since.

Also, there ought to be a recognition that more spending does not necessarily lead to intended outcomes. Unless there’s a devotion to implementation as well as effective oversight mechanisms, new programs often falter. The State often learn this the hard way. The Highspeed Rail Authority appointed an inspector general in 2023, but that was 15 years into the mismanaged project.

Fortunately, the requirement that the Governor and Legislature balance the budget each year serves as a powerful control. It compels the State to resolve much the financial issues it faces in the year it occurs rather to roll a deficit over to the next year and eventually issue debt to cover the shortfall. (The latter is unfortunately what the federal government does, by the way.)

Due to the budget deficit, the Governor and the Legislature had no choice but to be careful with their spending plan for fiscal year 2025 to achieve a balanced budget. Nevertheless, the high spending in recent years meant this fiscal year 2025 budget season was filled with protracted political drama, uncertainty among the state workforce about the future of programs they work under, a raiding of the State’s Rainy Day Fund, and more tarnishing of California’s ability to govern.

On the eve of a new fiscal year that marks the conclusion of a decade of unprecedented revenue growth, I can’t help but wonder: What did we get for the money?

Ben Goldblatt is a government oversight expert and a Certified Fraud Examiner.