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Newsom's State Budget Takes a Page From Shohei Ohtani’s $700M Deal
Joe-Mathews
By Joe Mathews
Published 2 months ago on
February 28, 2024

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California’s budget relies heavily on deferrals, similar to Ohtani’s contract.

Gov. Newsom’s budget includes at least $10 billion in deferred money.

State’s budget issues are due to structural problems and lack of tough decisions.


Shohei Ohtani is famous for being the world’s best baseball player, the only major leaguer of the past century who can both hit and pitch at an elite level.

Photo of Joe Mathews

Joe Mathews

Opinion

Perhaps he should take charge of California’s state budget too.

I say that because of his new contract. This winter, Ohtani signed a deal to play with the Los Angeles Dodgers. It was initially reported as a 10-year, $700 million contract, but baseball writers quickly discovered that its real details were quite different.

Ohtani had agreed to collect just $2 million a year 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 for the rest of his career; the fact that his deferred salary could weaken future Dodgers teams isn’t his problem.

The State Budget and Deferrals

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 to a stunning degree on deferrals and delays. Depending on who is calculating, his budget includes at least $10 billion in deferred money.

Such deferrals can be very complicated—involving multiple shifts of moneys between accounts. For example, the proposed budget would defer payments to the state’s two university systems, obligating them to borrow, using the deferred payments as collateral. The budget also pushes $1.6 billion in transit grants and $700 million in school facilities funds into the future.

One might justify such maneuvers as prudence or caution. But some deferrals are just plain gimmicky. Newsom proposes to save $1 billion by pushing the last state payroll of the coming 2024-25 budget year back one day: from June 30, 2025 into the following week, which falls in a new budget year.

These $10 billion-plus in deferrals don’t include education, which Newsom and legislative Democrats have claimed their budget doesn’t cut. But here, the administration is playing a more deceptive game. 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 Truth About California’s Budget

The truth, harder than an Ohtani fastball, is that California doesn’t have time to waste with gimmicks.

The way the state does this is too long and complicated to fully explain here—it involves the convoluted three-part Prop. 98 funding formula. But the short version is that 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 any explanation of how they might be achieved. The legislative analyst suggests these cuts might be enacted via deferrals that extend until 2030. Whatever the details, education gets less.

This shouldn’t surprise Californians. As this column has previously noted, “Screw the Kids” has effectively replaced “Eureka” as the state motto, even if it’s not yet printed on official documents. And playing accounting games with children isn’t limited to schools. The proposed budget uses a change in methodology for calculating childcare budgets to remove another $900 million off the current books.

Meanwhile, the state continues increasing its future obligations to retired workers. The budget makes few meaningful cuts in an expanding state bureaucracy that has seen significant pay raises in recent years. Those staffing increases and pay raises will produce even larger pension obligations in years to come. Payments to workers after they are retired, as Shohei Ohtani understands, are a form of deferred compensation.

Why Is the Budget So Out of Whack?

Why is the budget so out of whack? For years, I’ve conducted a long-distance argument about this topic with David Crane, a former UC regent and state teachers pension fund board member who has founded a political organization, Govern for California, to elect more state lawmakers willing to make tough, public-spirited decisions. Sometimes our debate takes place through former state legislator Ted Lempert’s UC Berkeley class on California government, where we both have been guest lecturers.

Crane argues that California governance fails because we need people in government who have the courage to take on the state’s powerful labor and corporate lobbies.

I argue the problem is structural—that California’s misbegotten governing system and broken state constitution keep pushing the budget out of balance.

But in this particular budget season, I must concede that Crane has the better side of the argument. California is not in a recession. The governor and the state legislature’s Democratic supermajority have the money and the power to make hard choices now. By deferring so much, they will make it even harder to balance the budget in the future, and push more costs onto the next generation of Californians.

Which is why our leaders should take Crane’s advice, and do the hard work of evaluating programs for effectiveness. They should cut the departments and initiatives that don’t work, or that frustrate Californians’ ability to start businesses or build housing or infrastructure.

State agencies and local governments also need to 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 invest in better services and schooling at the state and local levels.

Ironically, when details of Ohtani’s contract were first disclosed, some top state financial officials criticized the deferrals. They complained that Ohtani is likely to dodge California’s income taxes by having retired from the Dodgers and left the state by the time that $680 million is paid to him.

They had a point—which is why the state shouldn’t 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 rigorous budget that relies more on rigorous reforms than deferrals, he’d be hitting a fiscal home run.

About the Author

Joe Mathews writes the Connecting California column for Zócalo Public Square.

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