Opinion: California’s 4th-ranked economy is also high in unemployment and poverty

Gov Gavin Newsom presents his revised - state budget during a news conference in Sacramento Photo by Rich Pedroncelli Associated Press This column was originally published by CalMatters Sign up for their newsletters California s economic output has surpassed trillion a year and in doing so slipped past Japan to become were it a nation the globe s fourth largest business sector surpassed only by the United States China and Germany The news was an opportunity for Gov Gavin Newsom to exercise his penchant for braggadocio California isn t just keeping pace with the world we re setting the pace Newsom declared Our market system is thriving because we invest in people prioritize sustainability and believe in the power of innovation It was also an opportunity for Newsom to take another shot at President Donald Trump saying while we celebrate this success we recognize that our progress is threatened by the reckless tariff policies of the current federal administration California s market system powers the nation and it must be protected If California s commercial sector is booming as Newsom boasts one might wonder why the state s unemployment rate is the third highest in the nation with more than a million jobless workers and why its poverty rate is the nation s highest One might also wonder why if California s business activity is so healthy the state budget is experiencing chronic multi-billion-dollar deficits This week Newsom had to tell the Legislature how he will alter the - budget he proposed in January touching off the annual whirlwind of negotiations to produce a more-or-less final version for adoption by June The January budget proposed at least billion in short-term fixes including off-the-books borrowing dips into the state s budget reserves and accounting gimmicks to close the gap between projected income and the spending dictated by current law Tax revenues are running a bit ahead of expectations so far this year but not nearly enough to close the deficit which has widened due to spending on Medi-Cal California s wellness care system for the poor that s far exceeding the level of the - budget enacted last June Overall Medi-Cal expenditures are over billion higher than expectations with a major chunk caused by higher-than-expected enrollment of undocumented immigrants Therefore the May revise as it s dubbed included a freeze on new Medi-Cal enrollments by immigrants postponing the day of fiscal reckoning until Newsom s governorship ends two years hence But the deficit will continue to plague his successor and the Legislature The Medi-Cal situation exemplifies the underlying reason why California s budget is unhealthy while the state s commercial sector continues to grow albeit without producing a large number of new jobs The pertinent evidence is to be uncovered in a up-to-date publication by the Legislature s budget analyst Gabe Petek called CalFacts It reveals that since Newsom became governor in state spending has increased on average by a year while annual revenues have grown by just The difference between those two numbers constitutes what budget mavens call a structural deficit meaning that spending baked into law far exceeds what the current revenue system can generate The underlying discrepancy between income and outgo is vital to remember because Newsom cites the Los Angeles wildfires and Trump s tariffs as factors in the budget s gap Both of those events are likely to increase the deficit but they didn t cause it The deficit exists because Newsom and the Legislature have chronically spent more than the revenue system produces even though Californians have one of the nation s highest state and local tax burdens relative to the state s commercial sector Moreover by tapping into reserves meant to cushion the impact of recessions or other emergency situations Newsom and legislators have weakened the state s ability to cope with genuine economic setbacks or disasters such as the wildfires CalMatters is a community interest journalism venture committed to explaining how California s state Capitol works and why it matters