Who’s going to fix California’s fiscal apocalypse?

www.americanthinker.com

Herb Morgan isn’t a politician. He’s a retired chief investment officer and financial services executive who oversaw billions in institutional assets. Now he’s running for California state controller, arguing that California needs a financial professional in the job. His opponent, incumbent Marla Cohen, has no finance background.

Drawing on state audits and official state and federal data, Morgan estimates $312 billion to $425 billion in misplaced fiscal exposure over the past five years. The estimates include $55 billion in improper unemployment payments documented by the state auditor; an estimated $95–115 billion in Medi-Cal improper payments using federal methodology; and $24–37 billion spent on homelessness programs, with auditors finding little accountability for results. His conclusion is blunt: California has one of the nation’s worst records for improper payments and financial controls.

“Audits in California tend to happen after the money is already gone,” he has said. “That is not accountability.” Past waste is gone; better controls can save billions.

The controller oversees state finances but does not set the spending agenda. Morgan’s platform — real-time oversight, automated fraud detection, a public dashboard tracking every dollar — deserves attention. But he cannot solve the problem the next governor will inherit.

According to the state’s nonpartisan Legislative Analyst’s Office, Sacramento faces a $35-billion annual structural deficit that will confront the next governor in the 2028–29 budget. That is the inheritance. And Sacramento’s proposed response is what voters should fear.

Over the past four years, California accumulated roughly $125 billion in deficits despite nearly 50 percent growth in personal income tax collections. The Legislative Analyst’s Office says that running operating deficits during a revenue boom signals a structural — not cyclical — problem: Spending commitments have grown faster than recurring revenues can sustain.

The budget’s May Revision purports to achieve balance through 2028 largely by drawing down reserves, suspending rainy-day deposits, and relying on additional borrowing. The Assembly’s own budget adviser projects an operating deficit continuing through the next governor’s entire first term. The LAO warns that a market correction on the scale of the 2000 dot-com bust — which it considers the appropriate historical parallel given current conditions — could lead to a $100-billion revenue shortfall. But the reserves that could cushion that shock have already been spent.

Most of the General Fund is effectively off limits for cuts. Debt service is automatic, pension obligations are protected, and Proposition 98 guarantees roughly 40 percent of revenues for K–14 education. The governor has direct leverage over only a relatively small share of spending.

Here is where Sacramento’s answer becomes something voters should regard with alarm. The May Revision proposed spending reductions of only $1.8 billion — less than one percent of the General Fund. Instead, it relied on roughly $10 billion in annual revenue measures against a $35-billion structural gap.

The electoral playbook is primarily spending-driven, and Xavier Becerra, candidate for governor, makes no secret of that. His platform proposes moving California toward universal single-payer health care, expanding childcare assistance, and strengthening Medi-Cal — every one of them a sizable spending increase.

Becerra points to his experience leading the U.S. Department of Health and Human Services, but the federal government operates under fiscal rules that bear little resemblance to California’s constitutional budget constraints. More notably, his tenure at HHS coincided with a historic surge in improper Medicaid payments and the continued enrollment of ineligible recipients, raising questions about his record of fiscal oversight.

Becerra’s opponent Steve Hilton correctly identifies the problem: a spending surge that pushed spending growth 50 percent above inflation over a decade, while delivering worsening outcomes on every metric that matters — housing, homelessness, public safety, education. His prescription — return spending to pre-pandemic levels, eliminate income taxes for households earning under $100,000, and pressure a Democrat supermajority into accepting cuts — is more a governing philosophy than a workable budget. Accounting for the tax cut raises the required savings to roughly $60 billion, a target unlikely to be achieved by a Republican governor facing a Democrat supermajority. Hilton’s contribution is not a detailed fiscal blueprint, but a diagnosis: California has a spending problem rather than a revenue problem.

A Republican governor facing a Democrat-supermajority Legislature will not close a $60-billion gap by nicely asking lawmakers to cut a third of state spending. What Hilton offers that Becerra does not is the correct framing of the problem, with a willingness to say so publicly. In a race where his opponent wants to expand programs he cannot afford while calling the expansion a fiscal plan, that counts for something.

In January 2028, the next governor will inherit a $35-billion structural deficit, depleted reserves, counties already under fiscal pressure, and a Legislature accustomed to balancing budgets with temporary fixes. Most major spending categories will be legally or politically difficult to cut, while revenue will remain dependent on volatile capital gains. Political pressure to increase taxes and fees will be intense, even as higher-income taxpayers remain the state’s most volatile revenue source.

Herb Morgan wants to stop tomorrow’s waste. The next governor must confront yesterday’s promises. Gavin Newsom will depart Sacramento in January, leaving his successor the gift of a budget balanced only in his imagination. Whatever Becerra and Hilton are promising on the campaign trail, that fiction will be the next governor’s inheritance.

Garvin Walsh, retired from a career on Wall Street, is a resident of Cardiff-by-the-Sea, Calif. He is an elected member of the San Diego County Republican Central Committee.

Image: Famartin via Wikimedia Commons, CC BY-SA 4.0 (cropped).