Shock, But Not Awe

It seems that the legislature is not rolling over and just accepting what the governor proposed in his latest budget. Let's start with the concluding lines from a piece for the UCLA Anderson Forecast by yours truly written soon after the governor's May Revise budget proposal for 2020-21 was released:

"The value of the $53 billion headline from the perspective of the governor is that the number is so big that it might scare the legislature into going along with whatever his May Revise proposes. But even that impact is uncertain. There are staff people in the legislature who can do the same analysis as I have done... The headline may end up providing shock to legislators, but not awe."  

From "Headline vs. Reality (Which is Still Very Bad)" at:
https://www.anderson.ucla.edu/centers/ucla-anderson-forecast/may-2020-headline-vs-reality

The piece pointed out that the state has a lot of cash on hand - more than just the official rainy day fund - in various accounts outside the general fund. So, the legislature is not constrained to accept what the governor wants to do. It can leverage the available resources in the hopes that there will be a relatively quick economic recovery. That gamble may or may not turn out to be a good bet, but it is an available option in the short run if the legislature wants to make lesser cuts than the governor proposes. According to the LA Times, good bet or bad, lesser cuts are what the legislature wants:

California Senate Democrats are poised to reject $14 billion in budget cuts proposed by Gov. Gavin Newsom earlier this month, choosing instead to craft a spending plan that looks for other ways to erase the state’s deficit and assumes additional money for schools and social services will come from the federal government by early September. The proposal relies on an alternate approach to Newsom’s plea for additional funds from President Trump and Congress, said legislative sources who asked not to be identified because they weren’t authorized to discuss the document. It also proposes some different cuts than those in Newsom‘s plan...

Newsom wants $14 billion in immediate spending cuts — including $8.1 billion less for public schools — that would be rescinded only if federal cash is sent to California. In contrast, Senate Democrats will insist the budget be scaled back only if sufficient federal assistance doesn’t arrive by Sept. 1. The legislative plan “avoids harm to schools and other programs by not implementing harsh cuts that may prove to not be necessary,” states an internal Senate document obtained by The Times.

The Senate plan lays out $13 billion in budget solutions if assistance from Washington doesn’t materialize. That includes additional use of cash reserves, internal borrowing and a more limited list of cuts. The plan also opts to delay, not cut, some $5.3 billion in school spending should the state not receive the assistance and would scale back Newsom’s proposed cuts to the University of California and California State University systems...

Full story at https://www.latimes.com/california/story/2020-05-27/california-lawmakers-gavin-newsom-budget-extend-deadline-federal-cash  

It is often said that the legislature is legally required to have "balanced" budget. While technically true, that statement hides the fact that "balanced" is a very elastic concept and that whatever it means only has to happen on paper. With sufficiently optimistic assumptions and a loose enough concept of "balance," any conceivable budget can meet the legal test.

Of course, the governor can veto whatever budget the legislature passes and create an impasse.* But Newsom has shown himself to be shy of confrontation. That shyness has been particularly on view as various counties and local jurisdictions have defied the governor regarding the coronavirus shutdown rules. His tendency when defied on the shutdown rules has been to speak nice words about cooperation and his opponents and to try and work out some kind of compromise. Best guess is that the same approach will be taken by the governor on the budget.

If the legislative bet on a quick recovery and on money from Washington doesn't materialize, there will be more fiscal pain in the future than if a more cautious approach had been taken. But this is now and that is then. It appears for now that the legislature was shocked by the governor and his May Revise, but not awed by either one.
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*Thanks to voters, the state constitution requires the legislature to enact a budget by June 15 or lose a day's pay for each day beyond the deadline. But court decisions leave it to the legislature to determine what constitutes a budget and what balanced means. If the governor vetoes the entire budget, therefore, there is no cash penalty for individual legislators, even if the state goes without a budget into the next fiscal year.