Opinion: Newsom’s Budget Has More Deferrals Than Shohei Ohtani’s New Contract (2024)

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Opinion: Newsom’s Budget Has More Deferrals Than Shohei Ohtani’sNew Contract (1)byJoe Matthews • Zócalo

Shohei Ohtani is the only major league baseball player who can both hit and pitch at an elite level.

Perhaps he should manage California’s state budget too.

I say that because of his new contract. This winter, Ohtani signed what was initially reported as a 10-year, $700 million contract to play for the Los Angeles Dodgers. But the real details were different.

Ohtani agreed to collect just $2 million annually for the next 10 years. The team would defer the rest of the deal, some $680 million — and pay it to Ohtani more than a decade from now, when he is in his 40s and retired. Ohtani essentially leaves the Dodgers more money to sign other top players and build an elite team around him now; future Dodgers teams are not his problem.

To find a public financial document in California with more deferrals than Ohtani’s contract, you’d have to look at the state budget Gov. Gavin Newsom proposed last month.

Attempting to close a $58 billion budget gap, Newsom is relying on at least $10 billion in deferrals and delayed payments.

Such deferrals are complicated — involving multiple shifts of moneys between accounts. The proposed budget defers payments to the state’s two university systems, suggesting they borrow instead. The budget also delays $1.6 billion in transit grants and $700 million in school facilities.

And in an accounting gimmick, Newsom saves $1 billion by pushing the last state payroll of the coming 2024-25 budget year back one day, into a new budget year.

These $10 billion-plus in deferrals don’t include education, which Newsom and Democrats claim their budget doesn’t cut. But that’s deceptive. The state’s non-partisan Legislative Analyst’s Office found that California is actually reducing spending on schools and community colleges by $15.2 billion, relative to the budget enacted in June 2023.

The way the state does this is too complicated to explain here — it involves the convoluted three-part Prop. 98 funding formula. The short version: Newsom is charging $9 billion in reductions to the 2022-23 school year and redefining these cuts as a reset of the funding baseline. There are several more billion in school cuts that appear in the budget without explanation of how they would be enacted.

Meanwhile, the same budget makes few cuts in an expanding state bureaucracy that has seen significant pay raises recently. Staffing increases and pay raises will produce even larger pension obligations in years to come. Payments to retired workers, as Shohei Ohtani understands, are a form of deferred compensation.

Why is the budget so out of whack? For years, I’ve conducted a long-distance argument about this with David Crane, a former UC regent and state pension fund board member who founded a political organization, Govern for California, to elect more public-spirited lawmakers.

Crane argues that California governance fails because our politicians lack the courage to take on the state’s powerful labor and corporate lobbies.

I argue the problem is structural — that California’s broken state constitution pushes the budget out of balance.

But in this budget season, I must concede that Crane has the better side of the argument. California is not in a recession. The governor and legislative Democrats have the money and power to make hard choices now. By deferring so much, they would make it future budgets hard to balance, and push more costs onto younger Californians.

Which is why our leaders should take Crane’s advice, and do the hard work of evaluating programs for effectiveness and cutting those that don’t work. State agencies and local governments also should enact Crane’s best idea: stop spending billions on retiree health care costs and instead have government workers rely on federal programs like Medicare and Obamacare, like other retirees do. Ending these retiree health benefits will free up money to provide better services for Californians.

Ironically, when details of Ohtani’s contract were first disclosed, top state financial officials criticized the deferrals. They complained that Ohtani might dodge California’s income taxes by retiring from the Dodgers and leaving California by the time that $680 million is due him.

They had a point — so why imitate Ohtani now?

The truth, harder than an Ohtani fastball, is that California doesn’t have time to waste with gimmicks. Tax receipts are already running billions behind the overly optimistic revenue projections in Newsom’s January budget. If the governor were to tear up his proposal and offer a budget that relies more on rigorous reforms than deferrals, he’d be hitting a fiscal home run.

Joe Mathews writes the Connecting California column for Zócalo Public Square, an Arizona State University media enterprise.

Opinion: Newsom’s Budget Has More Deferrals Than Shohei Ohtani’s New Contract (2024)
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