Opinion | The Great State Budget Con

California Gov. Gavin Newsom speaks during a press conference on May 10, 2021 in Oakland, California.


Justin Sullivan/Getty Images

Treasury Secretary

Janet Yellen

on Monday again spun the fiction that states and localities are drowning in red ink. Apparently she missed

California Gov. Gavin Newsom’s

news that the state has an astonishing $75 billion budget surplus.

“During the Great Recession, when cities and states were facing similar revenue shortfalls, the federal government didn’t provide enough aid to close the gap. That was an error,” Ms. Yellen said as she rolled out expansive guidance on how states can use their $350 billion booty from the Democrats’ $1.9 trillion spending bill.

“Insufficient relief meant that cities had to slash spending, and that austerity undermined the broader recovery,” she added. “With today’s announcement, we are charting a very different—and much faster—course back to prosperity.”

Talk about fighting the last war. Most states and localities were already prospering financially before Democrats handed them $350 billion in direct aid plus $129 billion for schools and tens of billions more for Medicaid, colleges and public transit, among other things, in March. The Census Bureau recently reported that 2020 state and local revenues overall were 3.7% higher than in 2019.

Tax revenues have been surging in the first several months of this year, especially in Democratic-leaning states that tax their rich more. New Jersey’s general fund revenues for the fiscal year are running 15% higher than a year ago, letting

Gov. Phil Murphy

for the first time make his state’s full actuarially required pension payment.

Illinois has two more months in its fiscal year, but its general fund revenues have already exceeded the total for each of its prior two fiscal years.

Gov. J.B. Pritzker

nonetheless continues to claim budget woes as an excuse to cut the state’s scholarship tax-credit program that helps low-income students attend private schools.

Speaking of political disgraces, Mr. Newsom has miraculously turned a $50 billion projected deficit into a $75 billion surplus while maintaining one of the nation’s strictest Covid lockdowns and losing population for the first time in a century. He can thank the monetary magic of Federal Reserve Chairman

Jerome Powell

for creating a capital-gains gold rush in Silicon Valley.

Since Democrats in Sacramento can’t spend their windfall fast enough, Mr. Newsom plans to become a cash turnstyle and send checks to voters ahead of his recall election this year. “We believe people are better suited than we are to make determinations for themselves on how best to use these dollars,” the Governor declared. His “people” don’t include the upper middle class and high earners who pay nearly all of the Golden State’s taxes.

Taxpayers making less than $75,000, including undocumented immigrants, will get $1,100 ($600 if they don’t have kids). These handouts account for $12 billion of the state surplus. Mr. Newsom in his revised budget also proposed spending $12 billion on homelessness, $4.2 billion for the state’s bullet train and $3.2 billion for electric vehicles. Wildfire prevention, apparently a much lower priority among Democrats, receives a mere $1.2 billion.

Surging revenues vindicate those who said states didn’t need a bailout. The March bill was much less about Covid than it was about giving Democratic politicians money to pad their election chances. Mr. Newsom is proving the point.

Wonder Land: By paying people not to work, the Biden Democrats will damage the U.S. work ethic for a generation. Images: Getty Images/iStockphoto

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Appeared in the May 15, 2021, print edition.

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