Governor Newsom’s first budget is not only an early indicator of how he will govern, but Exhibit A in how California can be governed.

In a week when the nation’s capital is shrouded in hopeless rancor, Newsom’s budget proposes a responsible path forward.
Credit is the sweet dessert of politics, and Newsom gets credit for a plan that typically divergent interests (like the California Budget & Policy Center and the California Business Roundtable) have described as balanced and thoughtful. But the credit also goes to those interest groups, to lawmakers, to former Governor Brown and to the people of California who over the last decade have evolved their thinking and put in place rules and practices to better manage money, set priorities and improve results.

This winter and spring will be a real test for California policymakers. For sure, the surplus is historically high and the budget has never been this big. The challenges facing California warrant the same descriptor. If this were a movie narrative, the soundtrack would turn ominous – as global trade tensions, the gyrating stock market and a parade of other dangers cross the screen.

It really wasn’t that long ago when legislative leaders wept on the floor of their respective houses as they confronted the awful task of cutting essential services for the most vulnerable of Californians. In those dark days, every choice hurt someone, angered someone, divided the chambers.

Newsom’s proposal lays out how to spend that surplus in ways that address urgent needs and the root causes of our challenges. Paying down debt and putting still more money in reserve is the best prevention against having to cut the services that have been restored over the last six years.

A decade ago a proposal like this would stand little chance as the pressure would quickly mount to increase spending on services – and lock in those commitments in future years. The other side would insist on cutting taxes and returning money to taxpayers – even if it increased the debt, reduced California’s credit rating and guaranteed future cuts to essential services.

Maybe that’s next week’s narrative, but it doesn’t look that way. We are at that moment where we will find out if we have learned from the past – mistakes are not repeated and the smarter and harder choices prevail.

Governance debates inevitably touch on how much relies on rules and how much on the rulers. The answer is of course both – and with that insight, every new Governor, every new Legislature and every new budget is a chance for leadership and to improve governance. In the Newsom budget:

Newsom builds capacity to respond to a fiscal emergency.

Of the $21 billion in new revenue, 86 percent goes to “one-time” spending rather than growing base spending, the trap that snared Gov. Davis. Of that, $8.8 billion will pay down debt, including the final payments on the internal borrowing the State did more than a decade ago and paying down retirement debt to state employees and teachers statewide. Among other benefits, this frees up general fund revenue in future years.

Another $4.8 billion will go into reserves: $1.8 billion into the Rainy Day Fund established by voters in 2014, $700 million into the Safety Net Reserve that Sen. Holly Mitchell and Asm. Phil Ting championed in 2018, and $2.3 billion into the Special Fund for Economic Uncertainties to address emergencies. Rules and rulers matter.

Newsom takes an investment approach to poverty reduction.

Poverty is oppressing millions of Californians and income inequality is stifling economic vitality in every region. Newsom more than doubles (to $1 billion) the tax credit provided to low-income Californians – a proven, cost-effective mechanism to help struggling families. He increases spending in early education – a research-based and cost-effective investment in the future earning power for at-risk children. And he previews a plan to make community colleges even more affordable – the single best lever for working age Californians to get the skills needed to earn more than a minimum wage.

Newsom takes a performance approach to the housing crisis.

Newsom is willing to put more money into housing, but he wants to craft state funding as both an incentive and a reward to those cities that are doing what they can to allow affordable housing closer to jobs and public transportation.

As the California Economic Summit has documented, the housing crisis is an economic challenge conflated by political choices.
Newsom plans to increase the housing production goals established by the State for every community, and to provide $750 million in one-time funding to help and encourage local governments plan and approve needed projects. One third of the money would go to cities that want help with planning and the environmental studies that slow down and increase the costs of projects. The rest – $500 million – will be paid out as a bonus to cities that deliver. Newsom also proposes linking transportation funding to performance toward meeting the housing goals.

This approach advances the evolution in the state-local relationship. Housing is a local responsibility, but parochial choices are jeopardizing the California Dream. Newsom is making it clear that we share a responsibility – as do the State and local governments – to enable the Dream for others.

There is much more – in the budget and to be done – to address the economic and environmental consequences of climate change, wildland management and catastrophic fires; to grow middle-class jobs; and to encourage infrastructure investments, especially in distressed communities.

Before we start turning pages and scrutinizing the details, let’s take a moment to acknowledge how far we have come from the days when lawmakers insisted the budget was on autopilot and volatile revenue could not be managed, when partisans could and did use the budget to fight symbolic battles, and when performance was dismissed as the religion of profiteers that had no place in government.

The challenges before us have never been greater – the complexity of problems, the diversity of our regions, the unraveling of international and national institutions. We need transformational changes that simultaneously promote economic vitality, environmental sustainability and equality in opportunity and results. Realistically, though, we can only pursue that resiliency one day, one budget at a time – with a clear vision and the right next steps.