California's Budget Decisions Influenced by Politics, Not Data

Frustration came through loud and clear as legislators hurled question after question at the head of the state’s homelessness interagency council: Why, after years of planning and billions of dollars invested, is there so little to show for the effort?

“You come into a budget committee, and there’s no numbers,” Assemblymember Phil Ting, a San Francisco Democrat, said at the May 6 Assembly committee hearing. “Why is it taking so long?”

Assemblymember Vince Fong, a Bakersfield Republican, took issue with the council, saying it needed more money to compile the data. And Chris Ward, a Democrat from San Diego, said he’d been asking the same questions since 2022: “The fact that we’re still now, three years later here as a state is incredibly frustrating because that guides our decision-making here as a budget.”

But even without a full picture of how well the homelessness spending is working, Gov. Gavin Newsom is proposing cuts to cover the state’s budget deficit.

That’s just one example of how the state budget gets put together, often without fully knowing if a program is paying off. Revenue dictates decisions, and voter-passed initiatives direct some spending. After that, legislators use any available data, negotiate with other officials and listen to their constituents.

Advocates and interest groups also lobby them. (More than 650 organizations spent money lobbying on the budget, as well as other issues.)

For the 2024–25 budget now before the Legislature, Newsom released a revised plan earlier this month that calls for dipping into reserves, canceling some new spending and cutting existing programs to cover a remaining shortfall of $27.6 billion. The independent Legislative Analyst’s Office, which assesses the budget picture through different calculations, cites the deficit as $55 billion, though it generally agrees with Newsom’s overall view of the state’s finances.

Today and through this week, the Assembly and Senate will conduct hearings on Newsom’s proposals. The Legislature faces a June 15 deadline to approve its version.

Jesse Gabriel, who leads the Assembly budget committee, noted that only a handful of legislators have dealt with a deep deficit before. The state had a record budget surplus as recently as two years ago, thanks to federal pandemic aid and a roaring stock market; the last lengthy recession ended in 2009.

“This is a new experience for a lot of people,” the Democrat from Encino told CalMatters. “I think we’re going to have to work really hard together to get on the same page and do the best we can in a really difficult situation.”

State bases money needs on prior year

Addressing California’s deficit is a two-part equation, where increasing revenue could help. But Newsom has ruled out increasing taxes and instead emphasized “right-sizing expenditures,” telling legislators they shouldn’t expect bills with high price tags to pass.

For Gabriel, the May 6 hearing by the revamped accountability and oversight committee hints at an appetite for culture change in the Legislature — though one that could take time.

“We want to be doing a lot more data-driven decision-making about which programs and services are really delivering results for Californians,” he told CalMatters. “For us, that metric is not. Did the money go out the door? But was it impactful? Did it make a difference in results for the people it was intended to serve?”

California currently uses “incremental budgeting:” Each department’s or program’s funding request starts with what they spent last year, updated with best estimates of what they need in the coming year. Also known as “baseline budgeting,” it’s the most common approach states take, according to the National Conference of State Legislatures.

Some public analysis of how programs are working comes from the nonpartisan Legislative Analyst’s Office and state agencies, sometimes at the request of lawmakers.

However, a CalMatters analysis published in February found that 70% of the 1,118 state agency reports on how laws were working due in the past year had not been submitted to the Office of Legislative Counsel, which keeps reports. And about half of those that were filed were late.

California’s budgeting approach is in contrast to two other systems: performance-based budgeting and zero-based budgeting.

Performance-based budgeting ties funding to how well programs meet their goals and allows departments more flexibility to use any savings. The data-driven approach can create more transparency, according to research commissioned by the Assembly’s Budget Committee in 2012. But it’s difficult to implement and can be inequitable, according to the National Conference of State Legislatures — for example, by linking school funding to test scores. 

Under zero-based budgeting, agency budgets start each year from $0. But no state uses the system in its true form, the conference notes.

While more states are moving towards performance-based budgeting — including Minnesota, New Mexico and Utah — more comprehensive efforts to change California’s system have fizzled.

This year, Fong, who is vice chairperson of the Assembly budget committee, introduced a bill requiring state agencies to use zero-based budgeting, but the measure has not been heard in committee.

In 2011, then-Gov. Jerry Brown vetoed a bill requiring state agencies to use performance-based budgeting, saying it would impose a ‘’one size fits all” budget planning process on every state agency and function.

“The politically expedient course would be to sign this bill and bask in the pretense that it is some panacea for our budget woes,” he wrote in his veto message. “But the hard truth is that this bill will mandate thousands of hours of work — at the cost of tens of millions of dollars — with little chance of actual improvement.”

Instead, Brown advocated what he described as a common sense approach to budgeting that would examine whether some programs or departments should exist at all.

Performance-based budgeting also has downsides: A program that’s underperforming may still deserve funding, lobbyist Kristina Bas Hamilton said. “That should be what the policy and budget-making process is about, is having that dialogue,” she said.

And just looking at departments or programs doesn’t show the full picture of state spending, argues Scott Graves, budget director of the California Budget & Policy Center, an advocacy and policy group. That’s because of business and other tax breaks, which are typically renewed year after year.

“Rarely do policymakers come back around and ask, ‘Do they still make sense? Are they effective? Are they achieving the goal for which they were created?’ And as a result, we end up with a lot of waste on the tax expenditure side of the budget,” he said.

“If we’re going to argue for greater scrutiny of state spending and asking what we’re getting for our money, we need to do that not just on the budget side, but we also need to do it on the tax expenditure side.”

Giving taxpayers a voice

Where data doesn’t tell the whole story of which programs are worth funding, public input can fill in some gaps.

Both Senate President Pro Tem Mike McGuire and Gabriel told CalMatters that the budget hearings from January through June are key to the decision-making.

McGuire said his office also receives thousands of comments from the public — emails, postcards, requests for meetings and more.

“It’s not just one source of feedback, but multiple sources of feedback. And by the way, that’s the way it should be,” he said in an interview with CalMatters. “It’s coming from the public, from members themselves, shaped by their lived experiences and opinions, through advocates for nonprofits.”

Various interest groups have mobilized to push back on Newsom’s proposed cuts, including rallies at the Capitol or through virtual campaigns.

Julie Baker, CEO of CA Arts Advocates, said building coalitions has helped the arts community secure funding from legislators in the past.

“They need to know what their constituents care about, and showing up and telling them that we oppose, in this case, the arts cuts — letting them know how that will impact their own communities — is critical for them to understand the decisions that they’re making.”

Greater transparency can help the public form an opinion about state spending, but getting that information isn’t easy. State Sen. Roger Niello, a Roseville Republican, introduced a bill that would have required state agencies to post their expenditures in a clear and accessible way for the public, but the Senate’s appropriations committee killed the bill in last week’s “suspense file” hearings.

On May 1, advocacy groups California Budget & Policy Center, Catalyst California and the Million Voters Project launched the Budget Power Project, which plans to hold workshops to understand the budget, as well as lessons on how to advocate — at cities and counties as well as the state Capitol.

The idea was conceived during the windfall of federal pandemic aid to ensure that money reached communities most in need — and out of a concern that budgets are often crafted in the shadows.

Bas Hamilton — who wrote a book on how to advocate in the Legislature — said the power of public input shouldn’t be underestimated and challenged the notion that the same people, or the loudest people, advocating is a negative.

“They might be representing voices that are marginalized, and that might be the only venue they have to get these messages across,” she said. “I would say there’s a lot of lobbyists in the Capitol, but … some of them are fighting the good fight, and having them be the loudest in the room, I would say, isn’t a bad thing at all.”

Changing the budget process

Although the effort to move the state to performance-based budgeting failed, California has seen some big changes to the process — though whether they’ve helped or hurt the state’s finances depends on who you ask.

In 2010, voters passed Proposition 25, which required the Legislature to pass a budget by June 15 or lose pay and also lowered the number of votes needed for passage. While that cut down on political gridlock, Jon Coupal, president of the Howard Jarvis Taxpayers Association, said it has led to a shoddy budget that is constantly amended the rest of the year.

Because Democrats hold a two-thirds “supermajority” and don’t need Republican votes to pass the budget, there’s no longer a “Big 5” committee, where leaders of both parties negotiate with the governor. It’s now just the Democratic leaders and Newsom. There’s also no Assembly-Senate conference committee that held public hearings.

Other efforts to change the process have failed.

In 2020, Sen. Scott Wilk introduced a bill to create a two-year budgeting process — the first year for writing the budget and the second to focus on oversight.

“The reason for that, frankly, is our government — we look at input,” the Republican from Lancaster told CalMatters. “We never look at output. I think there’s programs we start that are no longer effective, are no longer needed, yet we’re still spending money because everybody’s building their fiefdom.”

A multi-year budget process could have benefits, said Chris Hoene, executive director of the California Budget & Policy Center. “One way to manage the fluctuations that are there would be to sort of admit that economic cycles don’t always adhere to an annual fiscal year.”

That could allow the state to put more money into its reserves, he said. The state constitution currently limits that — another topic that comes up during every budget downturn.

The Legislature has also made some attempts at more oversight, such as splitting up the health and human services budget subcommittees to hone in on each topic and revamping the accountability committee.

Legislators could also be more mindful of bills that add new costs — though they and the governor’s office won’t have a clear picture of added costs until measures are signed in the fall. Gabriel said he tried to send that message at a Democratic Assembly caucus retreat in January.

“We tried to be really mindful of the costs because there may be a lot of great policy ideas that folks out there want to pursue,” he said.

Another option to rein in costs each year could be to limit the number of bills legislators introduce. But while members say the volume makes it difficult to really weigh what the financial and other impacts of each bill might be, they also say it could hamper their ability to represent constituents.

And sometimes, a pricey bill or program is worth the fight, according to some legislators.

“These draconian cuts have real life and death consequences and will push our most vulnerable children, families, and aging Californians into homelessness and starvation,” Sen. Caroline Menjivar, a Democrat from Van Nuys, said in a statement in response to Newsom’s proposal. “As legislators, we hold the power to save the most vulnerable among us … I plan to fight back with everything I have.”