Legal Insurrection readers may recall that I reported on California’s staggering $68 billion deficit, caused by an “unexpected” economic downturn.
What is truly unexpected is that Gov. Gavin Newsom’s administration has just ordered a state spending freeze.
In a memo sent across California agencies and departments this week, the director of the Department of Finance wrote, “It is vitally important that state government is efficient, effective, and only expends funds that are necessary to the critical operation and security of the state. As such, all state entities must take immediate action to reduce expenditures and identify all operational savings achieved.”The department urged state agencies to take several steps to save money, including avoiding any new contracts or agreements to lease or purchase equipment and cancel all plans for non-essential travel to seminars, conferences or training. It also urged departments to halt the purchase of new technology, non-essential state vehicle replacements and to reevaluate expensive IT projects.H.D. Palmer, a spokesman for the Department of Finance, said the last time the administration made this kind of directive was at the beginning of the pandemic in the spring of 2020 when state revenues plunged.Palmer said the message to state agencies is simple: “We know you have an authorized budget, but if you haven’t spent the money on things you don’t need right away, don’t do it.”
The shortfall is likely to impact the 2024/25 budget, too.
California, the nation’s most populous state with the fifth-largest economy in the world, is now facing the biggest budget deficit in state history.Starting next month, California will begin its budget process when Newsom releases his proposed 2024-25 budget, followed by a revision in May. California’s legislature and Newsom will need to take into account the state’s multibillion-dollar budget deficit before the former approves the budget for the fiscal year that starts July 1.
Capital flight is a large-scale exodus of financial assets and capital from a nation due to events such as political or economic instability, currency devaluation, or the imposition of capital controls. California shows capital flight is real. There isn’t enough wealth coming from the wealthy any longer.
The deficit for the fiscal year that begins in July is tied to the waning fortunes of California’s wealthiest taxpayers, who pay the bulk of personal income levies, the state’s largest revenue source. The shortfall is forcing the government to consider cuts to key services, including schools, and to weigh tapping budget reserves.“Issuing this letter now gives us a head start on the budget process by using the governor’s executive authority to get agencies to cut back on nonessential spending,” said H.D. Palmer, a spokesman for the state finance department. “We have roughly seven months left in the fiscal year, so by taking this step now and by getting ahead of the process, we can achieve cost savings that will contribute to closing the budget gap.”
California politicians can be blamed for fueling capital flight.
Of course, the move could also be a bit of strategy on Newsom’s part.
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