State analyst thinks Newsom’s budget deficit prediction is “optimistic”

The nonpartisan Legislative Analyst’s Office views California Gov. Gavin Newsom’s budget proposal as “plausible, but optimistic.” 

The LAO published an overview of Newsom’s budget on Saturday. 

The backstory: Last month the LAO projected California to have a $68 billion deficit due to worse tax revenue than expected. 

• Newsom announced his budget proposal last week, projecting the deficit to actually be $37.9 billion under his plan. 

The big picture: Differences between budget projections lie in what the LAO considers to be baseline changes – notably the changes for funding schools and community colleges. Newsom’s plan defines a $15 billion reduction to school and community college spending as a baseline change. 

• Newsom’s fixes focus on spending, totaling $41 billion according to the LAO. Newsom’s budget also includes tapping the state’s rainy day fund for $13 billion, $4 billion in cost shifts and around $400 million in revenue-related solutions. 

What the LAO says: In its analysis, the LAO said Newsom’s budget revenue projections is $15 billion higher than its own fiscal outlook, an estimate that is “plausible, but optimistic.” 

• The LAO added that there are strengths and weaknesses to Newsom’s approach. 
• “In particular, the Governor’s reserve withdrawal is reasonable, and we think focusing on spending-related solutions is warranted,” the review reads. “However, some significant spending-related solutions pose challenges.” 
• The LAO said Newsom’s budget lacks a plan for implementing proposed reductions to schools and community colleges, and some other solutions are unlikely to yield the anticipated savings. 
• The state also faces significant deficits in future years, effectively forcing the Legislature to make difficult decisions. 
• “Overall, the Governor’s budget runs the risk of understating the degree of fiscal pressure facing the state in the future,” the review reads. “The Legislature likely will face more difficult choices next year.” 
• The LAO recommends the Legislature plans for lower revenues, maintains a similar reserve withdrawal, develops a plan for school and community college funding, maximizes reductions in one-time spending and applies a higher bar for any discretionary proposals and contain ongoing service level.