Speaking regarding the Coronavirus crisis, Governor Newsom of California stated: "We see this as an opportunity to reshape the way we do business and how we govern."
The Governor of California best first find himself an expert in miniaturization. California’s self-vaunted fiscal health has been a public charade for years and now with the Coronavirus will be fully exposed as nothing less than a Zombie nightmare. The size and scope of California’s governmental expenditures is not sustainable.
The governor best concern himself with the State of California’s wallet before trying to concern himself with reshaping how we govern.
U.S. News and World Report rated California 40th of the states in long term financial health. That was before Coronavirus. That was before CalPERS, California’s Public Employees’ Retirement System, lost $70 billion in its investments by the end of March. That was before the stock market crashed with the elimination of projected California income tax revenues from the exercise of stock options, before the loss of sales tax revenues for March and probably April, before the closing of thousands of small businesses and before the general loss of income tax revenues from individual taxpayers. And California was rated 40th before the State was hit with unexpected and dramatic unemployment compensation claims.
Over half of California’s income taxes have historically been paid by that very small percentage of taxpayers earning over $500,000 per year. While we properly worry far more about those who are ill or missing payroll checks, most of those paying 50 percent of California’s income taxes have lost significant portions of their net worth and will be paying significantly less taxes in the future. That golden goose is very far from as fat as it was thirty days ago.
While Governor Newsom is raising concerns about wealth inequality, he best worry about a State in financial trouble. That wealth inequality has not gone away, but it has compressed significantly in the last thirty days.
Governor Newsom was first to the party in terms of locking down a state to prevent a faster spread of the Coronavirus and for that he should be knighted. But that knighthood is time stamped. California is in fiscal crisis; he needs to develop and disseminate a fiscal plan.
The federal government can print money; neither states nor cities can print money. Emblazon that thought in your mind as it will guide you through the upcoming shortfalls in state/city revenues versus committed expenses.
As stated above, in California, the pension plan has lost about $70 billion and has little or no hope of earning its projected 7 percent annual return of about $30 billion in earnings on its investment portfolio in 2020. Therefore, all by its little self, Calpers has a 2020 issue of about $2500 per California resident. This ignores that Calpers was significantly underfunded before the Coronavirus. Those who are expecting to collect their pensions from Calpers are not easily going to accept a reduction in their current or future pension payments. This is regardless of whether those with private pensions have been severely hurt. This is regardless of the reality that the State has not yet had any significant layoffs as have private businesses.
It is not hard to guesstimate California’s budget projected tax revenues for 2020-2021 of a little over $150 billion being closer to $100 billion and unbudgeted additional costs from the Coronavirus being in the billions. Every penny of the $150 billion is allocated for expenditure: $76 billion is supposed to fund education, almost $50 billion to fund health and human services and almost $30 billion for “other stuff.” Some of that “other stuff” is essential. Nothing in that budget anticipated Calpers being another $100 billion underfunded.
California is staring at a financial nightmare. California is not alone. No state and no city can print money ------ Plans are needed, now.