Gavin Newsom released a revised budget last week — the last of his governorship — and boasted that it is “balanced” for the next two years.

Based on what he is proposing, he appears to be using some uniquely hallucinatory drugs.

Newsom “balanced” the budget by drawing on some $20 billion in the state’s reserve funds — even as revenues rose more than projected, due to spending.

It’s like pulling out your retirement savings when what you really need is to stop using your credit card.

The nonpartisan Legislative Analyst’s Office says California has a long-term, “structural” deficit.

Newsom’s budget does nothing about that — quite the opposite.

Newsom’s proposal comes after the 2022 fiscal year established a surplus of $97.5 billion from President Joe Biden’s coronavirus spending (which was also borrowed money). 

That surplus evaporated into permanent expenditures, and an admitted revenue error of $165 billion, causing the following four years to have a collective deficit of $125 billion. 

Those deficits somehow disappeared amongst the perpetual “smoke and mirrors” to satisfy the requirement that the state maintain an annual fiscal balanced budget.

Despite that, Newsom wants us to believe that he is leaving California in good fiscal shape as he goes out the gubernatorial door. 

There are many facets of the budget, but the main one is the general fund.  The expenditure in his budget rises by 7.5%, even though inflation is much lower than that, and the state’s population is contracting.

One would think that to balance the budget he would have some significant expenditure reductions. If he does, they are hard to find. 

The only mentioned proposed cut is in health care for illegal immigrants through Medi-Cal, the state’s Medicad program. 

As for new ways of raising revenues, Newsom proposed a tax increase on software products sold electronically. Talk about a stealth tax people will never know they are paying when they renew their software agreements.

Newsom also proposed limiting tax credits for companies, setting a maximum at $5 million, or 50% of their California tax liability. But that won’t raise much, for two reasons. First, there just aren’t many companies big enough to qualify. Second, this is a severely stupid idea, because it removes tax incentives for companies to invest in socially useful projects, like low-income housing

The really fascinating aspect of Newsom’s budget is that it includes a projected $16.5 billion in revenue from tech people selling stock in AI companies. God knows who dreamt up that projected windfall and how they contrived that amount.  

The budget does not address the projected annual shortfall as a result of people leaving the state due to the proposed “billionaire tax.”  Perhaps a trillion dollars of wealth has left, and probably significantly more. We know that the top 1% of earners contribute 40% to 50% of individual income tax revenue in any given year. That means there is lost revenue of at least $15 billion that is not accounted for in the budget. 

With the overall reduced population, and the fact that so many wealthy and middle-class people are departing the state while their population figures are being filled by people earning less or people drawing benefits, how did Newsom’s team derive these revenue projections?

The projected general fund budget has an additional 6% of funding. The total budget enacted for this year was $297.9 billion, while the proposed budget for the coming year is $349.6. That is with a population that decreased over the past year.

This is a classic Newsom head fake. He makes the claim that he is leaving California with a balanced budget, and goes on a media victory lap. When reality hits the fan and the new governor (whether Republican or Democrat) must tackle the inevitable budget disaster, Newsom will be long gone. He will also blame his all-purpose demon, President Donald Trump. 

But as Newsom sets up his campaign to be the 28th president, Californians will be stuck with the bill.

Bruce Bialosky, a former presidential appointee, is a certified public accountant specializing in taxes.

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